Grain and the government

Grain and the government

USDA programs don't work well when the government shuts down

When I was planting this spring, I thought I had a good feel for the markets. I contracted one third of my corn and soybeans pre-harvest, and assumed I would spot the rest at harvest.

I have done that the past two years of farming, but 2015 is a bit different. I was confident selling at harvest in the past, but not this year. Current cash bids for both crops are hovering at break even.

Thoughts from the combine cab
What should I do with grain I have not contracted? I do not have any farm storage, so my options are spot selling, commercial storage, or another type of contract.

Related: How do we market grain, Dad? My take on grain marketing in 2015

A futures market decrease is the main risk of a basis contract. But, I can sleep easier at night knowing that my crop insurance policy provides price decrease coverage through October. (Fotokostic/Thinkstock)

I will finish filling my soybean contract today, and am putting the remainder on a January basis contract. The basis contract allows me to lock in a good basis, collect a portion of the value ahead of time, and I also benefit if the futures market goes higher.

A futures market decrease is the main risk of a basis contract. But, I can sleep easier at night knowing that my crop insurance policy provides price decrease coverage through October. The crop insurance gives me a put hedge through the end of the October harvest pricing period.

Is the government going to shut down?
I have also been trying to plan for this potential scenario. I participate in the USDA Beginning Farmer and Rancher loan program for crop operating money. I have had to jump through several hoops to ultimately receive a better interest rate than going through a traditional lender.

I recommend new farmers take advantage of these USDA resources. My loan officers walked me through my first cash flow statement and budget. The downside to using USDA is the government – more specifically, if it shuts down.

During a shutdown, no one is at the office, I cannot make draws, and I cannot pay down the loan. I accrued more interest during the 2014 shutdown because I could not pay down principal.

What are your thoughts on the government shutdown affecting your business?

The opinions of Maria Cox are not necessarily those of Farm Futures or the Penton Farm Progress Group.

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