2009-05-20

The Learning Season...

..But what season is not for learning?

It did not seem like that harsh of a winter, but it wiped out the wheat crop. A fair number of farmers lost their winter wheat, and alfalfa fields had to be plowed under too. This is not uncommon I suppose. Weather is the one known variable that one can only sit back and watch, wait, and hope. Well, we got smacked. Insurance will cover of course, but it changes the cash flow picture for the year. That can be handled, this is not a disaster. We are well positioned to handle this kind of forced flexibility. Never the less, it gives one pause.

The price of wheat spiked in late April, and I started looking to contract 40% of my crop to insure a reasonable price. I came close.... but held off hoping the spike would climb a bit higher. It did not. It fell quickly and I was kicking myself a bit for not taking what would have been a decent price. Lucky...., I was nothing if not lucky. Had I contracted that 1000 bushel, I would have been out trying to buy wheat right now, and probably loosing money having to do so.

....Late last year we had decided to invest in updating the grain storage facilities. Not a huge expense, but certainly substantial. We had also decided to expand the tillable acreage to an even 150. Another expense. Those commitments represent 23% of the farm revenue for an average year. That is a lot to take on in one shot. Fifteen percent is more reasonable. The thinking was that we would recover the cost of the expanded fields inside of two seasons, and we are easily on track for that even with the wheat loss. The storage upgrade is a risk mitigation strategy. I am uncomfortable contracting commodities that we have not grown yet. This year proves the risk in that. I know lots of folks do it, it is probably more common than less. But that does not make me feel any better about it. So upgrading we are.....

And now, looking back to late April, I am glad I held off on that contract for wheat. The reason for the storage is to reduce the risk of exactly what happened this season. I darn near blew it. We will put the crops in those bins. We will sell out of the bins, not out of the fields. It was a good idea when we made the decision, it is a good idea now.

Lesson Learned... stick with the damn plan when there is no compelling reason not to! ...and $0.50/bu is not compelling enough to risk not meeting a contract....

Leaning is very humbling sometimes.......