With both old and new crop grain prices overall still at historically high levels, producers have been focusing on how to tweak and update their marketing plans to best capitalize on current opportunities. Here are the top five factors you need to know to best help you enhance your grain marketing.
Know your cost of production
The spring crop planting date is coming up quickly. Soon you’ll be busy in the field, so take time now to get prepared with your marketing by first understanding your cost of production. Seed, chemical, crop insurance, machine costs, labor, and land expense all add up.
Be honest with yourself, it can be tempting to overestimate grain prices—or what you think future prices could be—and underestimate the amount of price risk your farm is actually exposed to based on input costs. Take a look at what the true cost is to put your crop into the ground. Odds are, right now, you likely have a profit that you can lock in.
Is $6 per bushel for new crop corn a good price? The answer depends on how much it costs you to produce that bushel. Without knowing the cost of production, you are basically gambling on whether the commodity you are producing is going to have value.
Not sure how to get started? Then keep it simple, and just put pen to paper to start defining your plan. This will provide you with some accountability. If you need more help, a simple internet search for example marketing plans can be found throughout several state Extension services.
Understand your local basis
The board price in Chicago and what you are able to receive in your local cash market can reflect dramatically different price points. For most producers in the Midwest, old crop corn basis is still historically attractive, due to tight supplies on hand.
Yet, when looking at fall delivery, many producers have told me that basis has slipped to more of a “traditional” point. Meaning, your local cash market is already assuming that your local area is growing a decent crop this summer, unless Mother Nature provides a surprise change.
Basis also tends to be seasonal during various times of the crop year. If you are regularly tracking basis in your local cash market, you’ll have a good expectation about what changes you will see throughout the marketing year, and will be able to capitalize on those movements, which can add nickels and dimes to your pocketbook.
Scenario plan for potential price moves
As of this writing, new crop corn and soybean futures are stuck in modest trading ranges waiting for fresh news regarding demand, global politics, potential planted acres for spring and expectations for spring and summer weather.
Looking at charts, new crop prices could easily run $1 a bushel higher if the underlying fundamental news leans bullish. Or prices could easily fall $1 a bushel if the news becomes “dull” or lackluster. Weighing the potential scenarios, you need to start deciding if it is worthwhile for you to pull the trigger now on cash sales. You also need to decide if the market rallies, where are your next targets for sales, and how much will you plan to sell? Vice versa, if the market starts to fall lower, will you have the discipline to make the cash sale, even though prices are starting to fall?
Acknowledge your constraints
In other words, learn from experience and pinpoint what is holding you back from your best marketing efforts. For some producers, they do not feel that they have great enough knowledge in understanding what affects grain price movement, so they are working with a trusted advisor to gain that marketing knowledge. Other farmers have said that they have trouble “pulling the trigger” on sales when “they know they ought to,” so figure out who can help you with accountability for the sales.
Sometimes, past issues or “sour feelings” of selling and delivering $4.50 a bushel corn when the market is now trading at $7 a bushel, can make a producer just stop in his tracks with his current marketing plan. This can lead to apathy or no future plan, because you’re still writhing in angst from a previous “poor” sale. Rather, look at marketing tools like puts that can protect downside risk if you’re waiting to see if prices will rise, and consider calls for sales you are making to avoid sellers’ remorse, which allows you to still partake on a rally.
It’s a global crop
Grain marketing has evolved and is not as simple as looking out your back door to understand where grain prices may trade. A global marketplace, you need to daily monitor: geo-political events, global production, global demand, freight costs, seasonal price action of commodities, outside market influences such as crude oil or currency exchange rates, and finally watching the fund money of the marketplace.
While the above may seem daunting, this is what the best of the best grain producers are doing. Grain marketing is a process that is dependent on a wide, ever-evolving set of circumstances. Yet with a consistent and disciplined approach, you will gain confidence in your skills. Creating a plan now plays a crucial role in avoiding the pitfalls of a wait-and-see approach to grain marketing.
It’s often been said that failing to plan is planning to fail. This can also ring true for grain marketing. Often, taking the wait-and-see approach might lead to lower than average prices over time. While many of you are family farms, you are also a family business and one that likely wants to pass on the business to the next generation. Hone your marketing skills now while grain prices are still high. History suggests that high prices don’t usually last too long.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
