The following is a story from the March 2021 edition of our First on the Farm Newsletter.
At the beginning of 2020, producers were going into planting looking at $3.25 corn, $8.50 soybeans, and livestock that was going to be hard to make a profit. With what ended up being a dry 2020, a hurricane going through east central Iowa, and improved exports, cash flow and a more positive outlook seem to be on the way up.
As we update balance sheets and work through customer annual reviews, a trend is occurring and our bankers are having good conversations about their customers’ balance sheets and projections. Balance sheets that were updated in December have seen considerable increases to the grain prices, and if that crop is sold above the price on the balance sheet, producers should see positive earnings for 2021.
For example, a 12/15/2020 balance sheet has 20,000 bushels of corn priced at $4.00/bushel, but that corn is now worth $5.00/bushel. For 2021, that would be a gain of $20,000. If that corn is sold for $3.50/bushel, there will be a loss of $10,000. So in easier term, if you sell anything above $4.00, you are locking in a profit for 2021. But selling anything under $4.00 will more than likely result in a loss for 2021. This is why we as bankers are encouraging our customers to take advantage of the current higher prices on their crop inventories and to start selling some 2021 grain or work with their marketer to lock in some corn at a profit.
There is a lot of optimism going into 2021 with how cash flows ended up in 2020 and the commodity and livestock prices for 2021. However, it’s still important to understand break evens and potential profit, and start locking those in. Like I was told by my first Ag lending manager when I started banking, “you can’t lose the farm if you sell at a profit.”