So says Ida Hurley, a longtime marketing adviser and founder of Hurley & Associates Agri-Marketing Centers. “Absolutely no guarantee exists regarding quality or value while storage costs accrue,” she says. Instead, consider the way various marketing strategies change the risk you bear:
- Forward contracting production removes the financial risk and leaves you only with production risk.
- Futures hedges lock in the price and leave you with cash-flow risk (margin calls) and basis risk. “It pays to shop for the best basis when you choose a delivery point,” says Hurley. “And if you have quality issues, you may face less dockage selling for feed rather than export markets.”
- Pay someone else to assume the risk by purchasing put options.
- Pay someone to manage your market risk
Hurley recommends using a marketing adviser who uses “stops” to keep futures losses low. “Commission fees plus potentially small losses in a choppy market represent the basic risk,” she says.
“Most important, remember that grain bins aren’t safety deposit boxes—they carry risk, so just as you assess the risk of investments, you should assess the risk to grain’s value.”