Ag Economists Warn Farmers to Contract Now, Not in Fall

By Mary Hightower

Farmers grasping for any handhold in a downward sliding agricultural economy need to remember two words: “forward contracting.”

Extension Agricultural Economists Ryan Loy and Hunter Biram, in episode 49 of “Morning Coffee and Ag Markets” podcast warn that many Arkansas farmers may not be able to break even this growing season.

“While the decline in commodity prices is very concerning, seasonality has tended to favor the price increases in this pre-harvest window,” Biram said.

Loy and Biram said June and July are the times to “forward contract for harvest delivery.”

“What we’re cautioning against is not pricing crop ahead of time and being at the mercy of cash prices at harvest, which are the lowest prices of the year due to the abundance of supply at harvest,” Loy said.

Scott Stiles, extension agricultural economics program associate, said “History supports forward marketing.

“Since 2000, futures prices in the first six to seven months of the year have outperformed harvest prices 79 percent of the time for corn and 71 percent of the time for soybeans,” he said. “There will be exceptions, but the odds favor making some early incremental sales of 10 percent of expected production.” 

Early in the production cycle, grain and cotton markets are typically volatile due to uncertainty about U.S. new crop acres or South American production. 

In 2016, Brazil surpassed the U.S. as the world’s largest producer of soybeans.