I’ve been bicycle touring across America this summer with my lovely wife, Debbie. As you might imagine, we’ve cycled through many areas where farming is king. With gargantuan fields all around us, we knew we’d run into a few farmers! In Belgrade, Montana, just outside of Bozeman, we spoke at length with a dairy farmer. In Iowa, we spoke with a farming couple from South Dakota who grow soybeans and corn.
Our contacts with these farmers suggested that they were not hedging their businesses, but would like to better understand how hedging could help them. Our extended conversation with the South Dakota farmer and his wife really convinced us that farmers bear a lot of risk.
There’s currently a glut of corn on the market, which has caused a drop in price from $7 to $3 per bushel. They are looking at marketing their crops in China and India, where prices are much richer. However, they have a logistical problem. These markets are serviced by ships sailing from the US Pacific coast, and there’s no easy route to ship their grains from South Dakota to the Pacific. Rail cars headed west are hard to come by, thanks in part to this changing marketplace and the oil boom in North Dakota. Meanwhile, the crops can be stored indefinitely only if the weather cooperates.