About This Episode
Recorded in mid-July 2020, Chris Barron and Steve Johnson agree the crop looks big. Johnson has been counting ears and kernels in central Iowa and can pencil 210 to 220 bushel corn in several fields, with half the crop pollinated and more rain in the forecast. He thinks the national crop lands well over 15 billion bushels, comparable to 2016. His concern is what happens to the bushels that will not fit in the bin at harvest.
His advice is blunt: price the overflow bushels and lock the basis now rather than playing what he calls the nickel, dime, 20 cent game. He expects basis to weaken by August, moving from 30 under to 40 under and from 50 under to 60 under at the co-op, with the Illinois River offline and storage tight. If you have enough bushels, negotiate basis directly with your grain merchandiser instead of accepting the posted bid.
Johnson also stacks up the government side. He expects a 2020 corn PLC payment of $50 to $70 an acre, paid October 2021, on top of a CFAP payment that ran $12 to $30 an acre and a second CFAP payment he thinks arrives in late summer at $10 to $30. That is over $100 an acre from the government for growing corn. On insurance, his own example is 190 bushel APH at 85 percent and $3.88, a $627 guarantee, against a harvest price he pegs near $3.10 to $3.20.
“I'm not playing this nickel, dime, 20-cent game. Let's go ahead and get the overflow bushels priced and get them away from our farm at harvest.”
— Steve Johnson
Key Takeaways
Johnson pencils 210 to 220 bushel corn in central Iowa fields and expects a national crop well over 15 billion bushels, comparable to 2016.
Price and fix basis on overflow bushels before August. He expects basis to widen from 30 under to 40 under, and from 50 under to 60 under at the co-op.
Government payments stack: $50 to $70 an acre PLC for 2020 corn paid October 2021, $12 to $30 an acre from the first CFAP, and a likely second CFAP of $10 to $30.
That is over $100 an acre from the government for growing corn in 2020, which covers a lot of poor marketing.
Insurance math in his example: 190 bushel APH at 85 percent coverage and a $3.88 projected price gives a $627 an acre guarantee, with harvest price near $3.10 to $3.20.
Let cash flow drive the sale, not hope for a rally. His test is what you tell your lender in December.
Full Transcript
Narrator: Hey podcast, two things for today's episode. First of all, as Steve Johnson mentions in the podcast, be sure to check out Iowa State University's crop marketing webinar. The link to that is in the description of the podcast. Be sure to get registered. That is for tonight, July 16th. The second thing is on the harvest storage calculator that we have at Ag View Solutions, please reach out to us. Uh, you'll hear a little bit on the discussion in today's podcast that this topic is not going away. If you haven't made any decisions in your operation or taken a look at what those bushels might actually be, please reach out to us. It's completely free, and hopefully we'll help you make some better strategic planning decisions here as we move into fall. Enjoy today's podcast.
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch, and today we've got Chris Barron and Steve Johnson with ISU. Steve, how's it going today?
Steve
Johnson: It's going great. We caught a real timely rain last night here in central Iowa, so I think we're good to go. I think we expect a large crop.
Chris
Barron: That's right. I think it's looking really good. I'm in north central Illinois, same deal here, catching some rain. It looks like a lot of these dry areas are catching the rain, aren't they?
Steve
Johnson: Yeah, absolutely. And so we've got rain in the forecast Sunday, Monday, Tuesday, so this is ideal timing. 50% of the crop's already pollinated, and I've been out counting ears and kernels, and I can pencil 210, 220 bushels an acre corn in several different fields.
Chris
Barron: Well, and I would concur from what I'm seeing as we drive around out seeing clients and working on some financial stuff. Just looking at this crop, I'd say it's about as good as I've ever seen. And what that leads me to is kind of a pointed question here, and I've been thinking about this all, all ever since, you know, planting season. I mean, a lot of areas really got this crop in timely. We did get dry for a period of time, but it's looking like this big crop may be coming on, and there's always this issue of extra bushels at harvest time, and that may be a concern this year. What's your thought? What are some of the things that guys need to be thinking about if we have bushels that we can't can't get in the bin, that's going to be excess.
Steve
Johnson: I think we need to go ahead and price those bushels, get the basis locked, uh, make sure that we understand there's going to be likely much weaker basis by the time we get into September and October. So let's get the basis fixed and let's go ahead and accept a flat price. I'm comfortable of getting some of these extra bushels priced because our breakeven is going to be a lot lower than we'd anticipated in April.
Chris
Barron: So talk a little bit more about that too. You know, it's, that's kind of a hard decision to do for a lot of producers. I mean, we just came off of a pretty decent rally. There was some bushels sold there, but probably guys are hitting themselves a little bit and saying, gee, I didn't sell any, or I didn't sell enough, or whatever. What, how do you answer that question?
Steve
Johnson: 7 straight years of a spring rally. So when we missed a spring or summer rally, we're to blame. Farmers just have to be more disciplined. So I'm not playing this nickel, dime, 20-cent game. Let's go ahead and get the overflow bushels priced and get them away from our farm at harvest. I think we're going to have all sorts of challenges of drying and storage, and I think we want to make sure these extra bushels are moving away from our farm and especially not into commercial storage that they're going to get locked up. For a long period of time.
Chris
Barron: So I know that you, you are involved with, you know, doing some of the USDA stuff and pay attention to what's going on in DC and with some of these programs that are kind of add-ons to the farm. And we've had CFAP and a few other things along the way. What are some of the things that you're hearing that might, might be coming our way or that we need to be kind of watching for on the farm?
Steve
Johnson: Well, number one, we're going to trigger a large PLC payment. So I think the PLC payment for the 2020 corn crop will be somewhere around $50 to $70 an acre. We won't get that till October of 2021 for the '20 crop. So we're going to add on another $50 to $70 PLC payment. We've already got a CFAP payment. We got that if we went ahead and signed up for the Corona Food Assistance Program, and that turned out to be roughly $12 to $30 an acre, $30 an acre on corn. And here's what I'm hearing, another CFAP payment coming. It'll probably be here August, September, probably gonna trigger off the planted acres, so it'll feel more like the, the Market Facilitation Program payment. So likely government kicking another $10, $20, maybe $30 an acre for corn at you this summer. Chris, you add those up and and you're well over $100 an acre from the government just for growing corn in 2020.
Add that on to your gross crop revenue and you can see that maybe I need to keep these bushels moving because government's gonna make up a lot of the poor marketing I might have done before.
Chris
Barron: So I know you work a lot on insurance, you study that, you're gonna do, you know, you do a lot in that area. Talk a little bit about how insurance plays plays into this as well, you know, even though we may yield our APH level potentially. Talk a little bit about that. Well, sure.
Steve
Johnson: Crop insurance revenue protection, that's what most people use. In addition, they probably have some sort of hail coverage or companion hail coverage. Crop insurance has worked the same way for 20 years. You multiply your APH times your level of coverage times the projected price, simple average December corn. So I got the math in front of me. I got 190 bushels an acre APH. I'm at the 85% level. I'm guaranteed $3.88 a bushel. I've got a guarantee of $627 an acre. That 85% of my APH is guaranteed. If the hail takes me out, a wind takes me out, I'm going to collect $627 an acre. But stop, we're going to have a lot lower prices. So we're guaranteed my bushels harvested times the harvest price. Chris, I'm thinking the harvest price the month of October probably going to come in around $3.10, $3.20.
So I might trigger a crop insurance payment, an indemnity claim, if I only grow my APH of $1.90. So I think you could be in one camp that says I'm going to collect on crop insurance because I'm only going to grow my APH on corn And I could be in the other camp. I'm not going to collect crop insurance, but I've got these extra bushels. Why don't I go ahead and get them priced so I've got some protection on the downside? And again, it's revenue protection crop insurance, and then the government farm program payments, PLC on corn, probably ARC-CO on soybeans that we won't trigger in 2020, but then CFAP payments that the government's going to send me. Already sent me one CFAP payment. I think I'm going to get another CFAP payment this late summer, fall.
Chris
Barron: So you talked about basis a little bit. Touch on that just a touch, a little bit more as far as, you know, the possible threat that you see with basis this fall.
Steve
Johnson: Well, typically when we have large crops, and I believe this is going to be the mother lode, I think it's going to be well over 15 billion bushels and comparable to that 2016 crop. I think the basis is going to weaken. It is when we have these large crops We don't have adequate storage and we've got some disruption. We got the Illinois River offline and unless we've got a lot of barges and we've got a lot of trains moving, basis is going to weaken. And Chris, I think by the 1st of August you'll feel it. The new crop basis that maybe it was 30 under and it's 40 under. At the co-op maybe it was 50 under, it's 60 under. For new crop delivery, I think we've got to go ahead and protect our basis. If we're going to deliver these bushels at harvest, let's be aggressive, and if we've got enough bushels, let's negotiate basis with our grain merchandiser.
Chris
Barron: Good, all good points. Let me, let me take the other side of this for a second and say, okay, I'm a producer that maybe sold a little bit during that rally and kind of hoping for maybe some rally between now and harvest time and really struggling with being able to pull the trigger between now and then, even on those overrun bushels.
Steve
Johnson: What's your response? My response is, how much money do you need in the fall and winter months? Let the cash flow drive you. Imagine sitting in front of your lender in the middle of December and the lender says, well, how much you're going to be able to pay back? And you're going to use that same excuse you've been using for the last 5 years: I didn't get enough sold. I think you let your cash flow drive you to trigger these sales and start to feel very comfortable that there's large crop coming, especially corn. I think we've got a little more time on soybeans, but especially corn.
I don't want to go into August without having set the flat price for those bushels that I'm delivering at harvest, and then I've got to plan accordingly how I'm going to manage storage as well as drying, because I think we've got some baubles coming at harvest with a 15.1, 15.2, 15.3 billion bushel corn crop.
Chris
Barron: Yeah, it's hard, hard to not believe that, especially like I said, as I've driven around, it looks pretty amazing. Is there anything else that I haven't touched on? I know you're going to be doing a webinar. Do you want to touch on that, what that is, and and how do people connect to that?
Steve
Johnson: Yeah, we've been doing free webinars, we do those every month, again Iowa State University Extension, we'll do this on Thursday night. If you want to pre-register, you must pre-register in advance, if you miss it, you can see the webinar replay. You'll have to Google to find our website where we're doing all the registration, all the videos, I'm a big, if you would, Eric Snodgrass supporter, I work a lot with Eric, we train a lot, Here's the 6 words you need to
Google: ISU Extension Virtual Ag Marketing Clubs. I write monthly newsletters, I post videos, we do live webinars. And Kristin, I mentioned these are all free from Iowa State University Extension. ISU Extension Virtual Ag Marketing Clubs. Again, Thursday night, July 16th, 7:00 PM, a live webinar.
Chris
Barron: Appreciate that. Is there anything else I haven't asked? I mean, I think this is a really important message that you're getting out as potentially a really big crop is coming on. We've had a rally. I know, you know, hope is in the air. It's really hard to— if you didn't hit a triple or a home run on some sales and then the market goes down, it's really hard to react. Is there anything else I haven't asked or anything else you want to talk about?
Steve
Johnson: It's the market discipline that's missing right now, Chris. And according to my conversation I had with Eric Snodgrass from Nutrien, an atmospheric scientist, it looks like a wet and warm late July and August. Wet and warm, more rain heading your way.
Chris
Barron: Well, that spells a big crop. So hey, really appreciate you reaching out, and I think this has been a great conversation, kind of a quick one, and we'll definitely be back in touch and have more conversations, and maybe we'll hit soybeans on the next one and talk a little bit about what producers might need to be thinking about getting the soybeans merchandise and working through that.
Steve
Johnson: Okay, great. Thanks for the opportunity.
Chris
Barron: Yeah, thanks a lot. Steve Johnson, Iowa State University, and this is Chris Barron with the Ag View Pitch, and we will catch you next time. Thanks, everyone.