U.S. farmers who tasted record-high prices for corn during last summer's historic drought are abandoning long-held selling strategies in hopes that the market serves up another rally.
Farmers say they are turning away from the traditional practice of making early sales of corn, the most widely produced grain in the United States, after missing out on big profits when prices peaked last September.
In the spring, they typically strike deals to sell a portion of the crop they expect to harvest in the fall to cover some costs for items like seed and fertilizer. The practice, known as forward selling or forward contracting, normally provides good returns for farmers before prices dip with the start of the fall harvest.
The lack of advance sales this year is creating pain for buyers like food and animal-feed companies, which like to lock in purchases of corn early in the year to map out some of their costs and ensure they will have a supply of grain.
Illinois farmer Rod Weinzierl said he has not sold a bushel of his 2013 corn crop yet after losing out on several dollars per bushel by selling too early in 2012. Usually by the end of March he has sold about 20 percent of the crop he expects to harvest in the fall.
"People are more gun-shy this year because they got burned last year," said Weinzierl, who leads the Illinois Corn Marketing Board.
National data on forward contracting does not exist. Grain growers, merchandisers and marketers estimate that the average pace of selling has at least been cut in half this year.
The U.S. Department of Agriculture offered farmers little incentive to sell last week by issuing an estimate for larger-than-expected grain inventories which sparked the market's biggest two-day sell-off in history.
At the end of March, North Dakota corn farmer Randy Thompson had forward contracted about 20 percent of the corn he expects to produce, down from as much as 55 percent at that point in past years.
He said he will hold off on making further sales until precipitation eases dryness in his fields because a repeat of last year's savage drought could hurt his harvest and send grain prices soaring again.
"I don't want to have a whole lot of corn sold if I can't raise it," Thompson said.
Some farmers last summer had to buy back at a loss the contracts for 2012 corn that they sold because the drought prevented them from producing enough to meet their commitments.
Rain and snow have recently replenished soil moisture in key growing states like Illinois and Iowa, said Andy Karst, meteorologist from World Weather Inc. States in the western Corn Belt, like Kansas and Nebraska, are still suffering from dangerous dryness.
HEADACHE FOR BUYERS
The lack of sales is pinching grain buyers, including livestock producers, ethanol plant managers and importers who want to lock in a portion of their corn in the springtime.
"From the standpoint of the commercial part of it, they're getting nerves wrecked because they don't have anything bought," said Jerry Gidel, chief feed grains analyst for Rice Dairy. "The commercials always love to have a certain percentage of their supplies."
Farmers, on the other hand, face little risk from delaying their sales because they are increasingly protecting their profits with federal crop insurance that guarantees revenues.
They have boosted their coverage in recent years as crop prices have climbed, and insured some 85 percent of eligible land last year.
The USDA's Risk Management Agency in February set 2013 revenue insurance at $5.65 a bushel for corn, essentially creating a floor for prices.
December corn futures, which represent the crop that will be harvested this fall, traded around $5.35 a bushel at the Chicago Board of Trade on Tuesday, down from a contract high of $6.65 last September.
"Now that the insurance has been established and current prices are at or below that level, there's no urgency to do a lot of marketing," said Darrel Good, a professor of agricultural and consumer economics at the University of Illinois.
Many farmers will eventually need to sell their corn before harvest because they do not have enough storage to keep the grain on their farms.
Richard Brock, president of commodity advisory firm Brock Associates, has already urged growers to forward contract as much as 80 percent of what they expect to harvest because he expects a big U.S. harvest to push prices lower.
R.J. O'Brien, the largest independent U.S. futures brokerage, also has advised farmers to be more aggressive in selling their crops, said Rich Feltes, the firm's vice president of research.
The recommendations are largely falling on deaf ears, according to the analysts.
"There's just almost nothing that's been sold," Brock said.
Thompson, the North Dakota farmer, said he regrets not selling corn from his 2013 crop when prices were high last summer. He sold a small amount last August.
The hesitation among farmers to sell seems to fall partly along lines of experience.
When Thompson began farming in 1985, nearby corn prices traded in a range of less than 70 cents for the entire year and never topped $2 a bushel. In 2012, the range was nearly $3.
"Back then it was a lot easier," he said about marketing. "If you screwed up, you weren't that far off."
Large profits from big harvests and insurance payouts during the last several years have made it easier for experienced farmers like Thompson to delay sales because they do not need cash right away.
Younger farmers with less money on hand often feel more pressure to sell early so they can cover their costs on paper, according to marketing advisors.
"A lot of older guys still hang on to stuff a lot more," Iowa farmer Craig Petersen said about growers who delay selling corn. "The last couple years, those guys have been the smartest marketers." (editing by Jim Marshall)