“If you fail to plan, you are planning to fail.” Crop farmers should take this adage to heart when marketing their grain, advised University of Missouri Extension agricultural economist Martyn Foreman.
“If you haven’t already developed a post-harvest grain marketing plan, then now’s the time,” Foreman said. “By outlining a grain marketing plan, producers have a better chance to boost the returns they earn from the large investments they made in producing the crop.”
When developing a plan, he said to keep it simple. By writing a one- to two-page plan, farmers can refer to it as needed and have a marketing strategy that’s simple to execute and specific to their operations.
To start planning, growers need these pieces of information:
• Expected production.
• Cost of production.
• On-farm storage capacity.
• Preharvest sales.
• Balance of production in storage left to sell.
• Cash flow needs.
With this information in hand, Foreman says, farmers can create a plan with four elements:
1. Split grain sales into increments.
For unpriced bushels you have in storage, divide those total bushels into increments. The size of the increments will depend on your cash flow and other financial needs.
Consider selling smaller increments more often rather than making two or three large incremental sales, Foreman said. The smaller increments will help you to spread your price risk over more bushels.
2. Establish price targets.
In most years, crop prices hit their lows at harvest and gradually increase through the late fall, winter and spring. Price gains from harvest lows to spring highs usually average 10% to 15%.
Knowing these seasonal price trends, you can set price targets for a significant portion of the grain in storage then sell when market prices reach your targets.
Price targets will depend on a crop’s supply and demand. Based on current market conditions for corn and soybeans, you might take a more aggressive stance, Foreman says. For example, you might set targets that are 20% to 25% higher than harvest lows.
In this case, you’d begin making incremental sales when prices are 10% higher than harvest lows and sell your last increment when prices are 25% higher than harvest lows.
3. Set sales deadlines.
Establishing a deadline to sell acts as a backup plan if price targets are not met. You can set sales deadlines to meet cash flow needs or align them with seasonal price tendencies so you may still capture seasonal price strength.
“If you establish sales deadlines in advance, then they help to dampen emotions associated with making marketing decisions,” Foreman said. “This is often one of the most difficult aspects of grain marketing to overcome. Sales deadlines force discipline into the marketing plan.”
4. Select marketing tools to use.
Outline how you plan to use basic cash contracts, including cash forward contracts, basis contracts, hedge-to-arrive contracts or other tools to capture marketing opportunities that may arise.
“If you choose to use futures, options or more complex contracts, then be sure you clearly understand the contract’s terms and risks involved,” he said.
You can find MU Extension grain marketing resources at muext.us/GrainMarketingResources.
The University of Missouri contributed this article.