Large crops and price pressure on loan deficiency payments make marketing grain a challenge. Still, there are ways to cover your bets. You just have to search them out.

Mark Twain said that once a cat jumps onto a hot stove it will never jump onto a hot stove again. But neither will it jump onto a cold stove.

In the past three years, crop marketing has been a "hot stove" issue for many farmers. They've been burned by low prices and stagnant markets to the point that they have little faith in the profitability of conventional selling methods.

"Corn and bean prices are some higher this fall than in the past two years," noted Gary Riekhof, who rotates corn (including white corn) with soybeans in his no-till operation just south of Higginsville, in Lafayette County, Mo. "But corn production and price is such that we're going to lose most of the LDP (loan deficiency payment). As a result, our net income on corn will probably be less than last year."

The USDA puts the 2001 corn crop at 9.24 billion bushels, down 7 percent from 2000. Soybeans are projected at 2.83 billion bushels, 2 percent above a year ago--a record production. For many producers, LDP still will figure in their total income, but as Riekhof said, probably not as prominently as in the past two or three years, especially with corn.

In 2000, for example, federal farm payments of all kinds--including LDP--amounted to some $27 billion. That was nearly half of total farm income. This year, prices have climbed just enough to virtually eliminate the LDP. It's a Catch-22 situation for farmers.

"If the 2001 corn crop had been below 9 billion bushels, we no doubt would have seen a better post-harvest rally in prices," said Riekhof. "That would let us not only recover the LDP, but gain 30 to 40 cents per bushel."

Soybeans paint a similar picture. With low soybean prices of the past few years, demand has increased steadily.

"And much of that demand is fairly inflexible," said Riekhof. "I think we can sell soybeans up to $6 per bushel without affecting demand very much. But with a record soybean crop, we aren't likely to see a strong sustained rally in the bean market."

Riekhof grows a sizeable acreage of white corn. In years past, when white corn could be contracted at a premium of 30 cents to 50 cents per bushel, he usually forward-sold a major part of the crop.

"But the premium on white corn is not that good now," he said. "We're getting about 15 cents per bushel over regular field corn. As a result, I haven't contracted white corn this year.

"Although the premium is less, the yield and dry-down of white corn is about even with field corn now," added Riekhof. "White corn hybrids used to have a considerable yield lag, in comparison with yellow corn hybrids."

Riekhof's "hot stove" experiences in the grain market have not made him shy away completely from something new.

"With soybeans, I used a different marketing strategy this year," he continued. "I sold some $4.80 put options for January maturity and used part of the premium income to buy back call options. This way, if I lose on LDP, I'll pick up the slack with options, and vice versa."

And, somewhat reluctantly, he has decided to invest in more on-farm grain storage.

"More storage will let me protect my basis better," he said. "We're close enough to the Kansas City market that basis doesn't fluctuate too widely. Still, basis here can vary by as much as 30 cents per bushel on field corn and by 20 cents or more on soybeans. FSA [USDA's Farm Service Agency] makes storage structure loans at below 5 percent interest, and bin manufacturers and marketers typically have pretty good price discounts around the end of the year. I believe the marketing flexibility I can gain from storage will pay a decent return on the investment in more grain bins."

Like most producers, Riekhof continually looks for ways to cut production costs and make his operation more efficient. One way is to save on machinery costs with a unique equipment-sharing scheme.

"I share my combine with a wheat grower in Kansas," he said. "In effect, I lease the combine to him to harvest his wheat crop in summer, then bring the machine home to harvest my corn and soybeans. It helps cut my machinery costs and lets me keep a new combine. That way, I have better equipment reliability and keep up with new technology in combines."

His corn crop this year was well above average--topping 150 bushels per acre in most fields. Soybean yields were not so great; wet weather pushed bean planting late. Still, in terms of income over costs of production, Riekhof doesn't see a great improvement in 2001 over 2000.

But like most farmers, Gary Riekhof is an incurable optimist.

"There's always next year," he said. "And eventually, South America will have a drought."