After a full season of hard work it is important to make sure you are paid fairly. If only grain marketing were as easy as writing those words. Hence, this article will outline 19 grain marketing tips from three experts to help you make the most from your growing season.
7 Grain Marketing Mistakes to Avoid
Sara Schafer, an editor at Top Producer warned against these seven common pitfalls while grain marketing. However, possibly her most important grain marketing insight was a quote from Ed Usset, an ag economist at the University of Minnesota. In bold for emphasis.
“To be a successful marketer, you need a strategy that considers your financial goals, storage capacity and appetite for risk.”
Schafer’s list of 7 grain marketing mistakes to avoid.
1. Not factoring in your cash flow needs. Be sure your grain has turned into cash before key payment due dates.
2. Keeping your lender in the dark. Sharing your marketing plan with your lender will help you be accountable to executing your plan. Moreover, if you plan to storage grain longer than usual communicating this in advance to your lending will help avoid any funding shortfalls for the following season.
3. Failing to cash in on seasonal price movements. 14 of the last 18 seasons Dec corn futures have declined from Spring to Fall. Soybeans also have a seasonal pattern. Strongly consider pricing some grain ahead of this seasonal decline.
4. Letting your confirmation bias rule. Avoid relying solely on information to confirm what you already think about the grain market.
5. Not having the labor or time to truck grain. Plan the timings of your deliveries around your logistical capacity.
6. Shooting to market the whole shebang. Dollar cost average your quantity at prices to reach your target average price.
7. No exit plan for your grain. Set a price and/or timing target for all of your un-priced grain. It can be as simple as selling in equal amounts on the first (any weekday) of the month.
Patience Until Spring
Chad Hart, an associate professor of economics at Iowa State University, offered his grain marketing thoughts in Iowa Farmer Today. This piece was titled, “Economist urges cost control, market strategy”.
Hart begins by conveying an understanding of recent market conditions and an expectation for the near-term future in the grain markets.
“This marketing year, like many of the previous years, will challenge producers’ patience and financial standing. It will take some time for prices to recover, and we may not yet have seen the low. But time is still on our side if we can position ourselves to ride out the next few months. Seasonal patterns and the current futures prices both suggest better prices will be available in the spring.”
Hart offers three pieces of advice to growers, two of which are related to grain marketing.
- Control Costs
- Utilize marketing strategies that take advantage of price rallies
- Growers should consider an alternative to storage
“Each year farmers should evaluate the relative benefits of owning the crop physically versus re-owning the crop, either by futures and/or call options.”
Hart’s tip two is similar to Schafer’s tip #3. Be sure to set your offers so as to not miss market rallies that hit your targets. Don’t wait to call the elevator when you notice the market has rallied. Failing to set your offers in advance will often times cause you to be too late.
Additionally, Hart’s tip #3 is especially relevant this season as grain storage is expected to be tight, especially in regions that typically ship westward to China.
Grain Marketing Checklist
Chris Barron, columnist at Top Producer has compiled a grain marketers checklist. In his story titled, “Manage Your Grain Market Opportunities”, Barron advises growers to follow this checklist to improve your grain marketing outcome.
1. Manage basis.
2. Calculate production cost to a per/bu. number. Barron considers an accurate cost of production, the foundation of grain marketing decisions.
3. Evaluate your cash flow needs for the current and upcoming seasons. Similar to Schafer’s #1 tip but Barron wisely encourages looking at upcoming payment needs with a two season horizon.
4. Determine sales increments (volume as a percentage) needed to match cash flow needs.
5. Determine sales timing (months) to meet cash flow.
6. Determine your margin target. Said differently, what is your profit per bushel goal. Is this a fair and realistic target for this seasons conditions?
7. Review and understand tools needed to reach profit margin target.
8. Review storage and logistics needs. Match to basis and sales plans. Another repeat grain marketing tip that is especially relevant this season.
Ag Nook’s recent story about no-bid soybean storage in the Northern Plains is a stark reminder of how important it is to not make assumptions about logistics and storage.
9. Document the plan and adjust to the moving target as needed. Putting pen to paper is a great way to hold yourself accountable to your marketing plan. Additionally, consider sharing it with others so as to avoid not sticking to it.
10. Use the numbers and the plan instead of emotion when pulling the trigger. We are all human and this is what makes grain marketing so difficult. A grain marketing plan with a set decision making routine and preset offers can help avoid making emotional decisions.
Rarely is grain marketing easy and this season is no exception. These 19 grain marketing tips from experts should help growers manage this challenge with flying colors. So be sure you are paid fairy, you have earned it.
Image Courtesy American Shipper