Forward Production Contracts

“Usually we’re looking at this time of year, trying to lock in the least loss, and then now we’re looking at alternatives among all the grain crops and even cotton what cotton prices have done, of which is going to make us the most profit.”

JOE WILDER FARMS THE BRAZOS BOTTOM AND SAYS WITH VOLATILE COMMODITIES, THAT’S NOT AS EASY AS IT SOUNDS.

“You go look and you say, ooh, I ought to do this, and you go back 4 hours later and it’s reversed and you say, I’m going to stay where I’m at, and then you get up the next morning and it’s reversed and went the other way.”

PRODUCERS CAN LOCK IN A PRICE ON A CROP BEFORE IT’S GROWN, BUT GRAIN MARKETING ECONOMIST MARK WELCH WARNS THAT THERE ARE ALWAYS PRODUCTION RISKS.

“In Texas, that seems to be greater than anywhere else in the country. You just really don’t know how much you’re going to have to sell on the other end.”

“What is frightening is like night before last, when the norther came through, our local station was predicting that we may get a little hail. Well, it makes you stop and think, we’re sitting here with 500 acres of wheat. Say I got 100% of it pre-sold, and all of the sudden we get a little hail storm and wipes it out, and then I’m buying 100% to fulfill my contract.”

AND FORWARD CONTRACTING CAN BITE IN BOTH DIRECTIONS.

“So many producers that did forward contract last year, or took some price positions, they did it way too early, and of course prices kept going higher, and higher, and higher, and no one wants to be caught giving away something because they priced too quickly.”

AS USUAL, MOST FARMERS CAN PUT IT IN SIMPLE LANGUAGE WE CAN ALL UNDERSTAND.

“I had one producer tell me he was afraid of being greedy or stupid. Greedy, because he didn’t sell when he could have and the price went down, or stupid because he sold to early, and the price went up.”


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