US farmers are finding that traditional practices for hedging their risks related to crop prices are not working as well this year due to the fast-moving futures market. "The volatility is just unbelievable," said Bob Dickey, a farmer in Laurel, Nebraska.
"It makes it extremely hard to know what to do and how to do it and try to incorporate some risk management practices." Fluctuating futures prices are affecting farmers' strategies related to selling supplies they hold in storage as well as their plans to set prices for crops they will harvest this fall.
Farmers who hedged last year's crops at specific futures levels found that the cash prices they received were well below their expectations when it cam time to deliver to an elevator or processor.
Grain buyers, under increasing stress to keep up with rising margin requirements, are posting basis bids well below historical averages, which reduces the cash payment they make to farmers. "That is really, really disappointing and really frustrating because you think you have done your risk management and done everything possible to reduce the risk and you find out that what you thought you had locked in was not even close (to the final price)," said Dickey, who saw his profit related to a livestock sale threatened by a weaker-than-expected basis.
Many grain elevators and processors have stopped buying corn, soybeans and wheat for delivery this fall because high prices have placed a strain on their resources.
Farmers who cannot lock in profits for their upcoming crop must gamble that prices will remain robust until this fall. That is particularly risky this year due to rising costs for inputs such as fertiliser, fuel and rent for crop land.
Gyrating futures market are even keeping some farmers from booking sales on the spot market. If a futures contract locks up or down the daily trading limit, most dealers will not buy anything until prices start moving again. By halting purchases, dealers protect themselves from a sharp move in either direction when the market reopens.
But it passes that risk directly to farmers who are trying to unload their grain. "I tried to sell my last 1,500 bushels of beans and they would not let me do it," said Eugene Sandager, a farmer in south-western Minnesota. I could not even sell it on the cash market. I had never, ever heard of that."
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