4 time-tested practices for successful grain marketing

Block out the ‘news noise,’ focus on developing a plan for selling your 2020 crop

Taking a look at recent headlines can result in a roller coaster of emotions for any agricultural producer.

In recent weeks, we’ve celebrated news of a new trade pact with China. The happy high didn’t last long, though, after the deal’s fine print revealed significant loopholes that may hinder a quick export boost. Add to that concerns about the coronavirus, which have disrupted global trade and depressed both prices and emotions.

The headlines change with the years, but every growing season brings with it a slew of uncertainty. Everything from trade negotiations to delayed planting can cause market volatility. But these challenges shouldn’t override best practices for grain marketing.

As difficult as it seems, you need to block out all the “news noise” and focus on developing a marketing plan for selling your 2020 crop. Though it helps drive profitability, the marketing plan is often a low priority. Instead, marketing decisions are reactionary—emotions outweigh data—and rarely accomplish marketing goals.

Before you head into the fields this spring, spend some time thinking about your marketing plan. Consider these time-tested practices to manage risk:

Know your cost

Farmers do a great job managing many aspects of their operations, but accounting and financial recordkeeping aren’t usually among them. Many don’t know the crucial details about their cost of production, which is essential information for a marketing plan.

Before spring planting is going full throttle, sharpen your pencil and start determining your cost of production. Remember to calculate both direct and indirect costs. Focusing on direct costs alone can give you a distorted sense of profitability.

Direct costs are the costs directly related to the products you are producing, including seed, chemical, fertilizer and land rent. Indirect costs, including depreciation, interest, repairs, taxes and insurance, are more difficult to quantify on a per-unit basis and often require allocation.

Keep an eye on the budget

Setting, and then closely watching, a good budget by enterprise (corn, soybeans, etc.) is essential for capitalizing on marketing opportunities. An enterprise budget is an estimate of the costs and returns to produce a crop.

Knowing how much money you need to make to cover costs—the break-event point—helps in identifying marketing opportunities. For instance, if my break-even price is $3.60 an acre, then I know with certainty that if I sell my grain for $3.60 I will break even.

Once you have established your budget, compare it to actual expenses. This will help you identify opportunities to manage costs, update break-evens and make any changes to the marketing plan. 

Project cash flow

The mantra in crop marketing is “be a price maker, not a price taker.” But failing to capitalize on profitable marketing opportunities can leave you cash poor and pinned in a corner when the bills come due. You could be an unhappy price taker.

It never fails that marketing opportunities happen at the most inconvenient or unexpected times. For instance, in many years some of the best grain marketing opportunities have occurred during planting season.

By projecting cash flow, you can identify a time frame when you’ll need to market your grain to pay the bills. Then, whenever a profitable marketing opportunity presents itself—even if it arrives in the middle of the busy season—you’ll be ready to pull the trigger. 

Match the tool to the opportunity

There are countless market-watching services available to predict when the market will move higher and how far it will go. But knowing the “when” won’t help much if you don’t understand how to use the tools available to manage your operational risk.

Just as you need the right tools to repair a planter or tractor, it’s essential to know which grain marketing tool—contract types, options, futures, etc.—is needed for a given situation. Matching the correct tool to the opportunity is key to being successful in grain marketing.

It’s important to educate yourself about all the tools to help you take advantage of the seasonality of prices and your local basis. If you don’t understand the tools available and how to accomplish your marketing plan, ask for help from a marketing professional. Pack your toolbox now to be ready to make sales when opportunities arise as well as leave upside open for greater profitability.

Removing or eliminating all emotion from crop marketing is fundamentally impossible for any human. However, implementing these four practices can help mitigate or reduce emotions. Focusing on accurate data and executing a marketing plan will give you the best chance to meet your marketing goals and positively impact the bottom line.

Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it a reality. Contact him at [email protected].