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Stay Margin Focused
Jul 29, 2012
It’s easy to become consumed by the shock and awe of stressed crops, low yield potential and record-setting grain prices. With the yield uncertainty on our individual farms, most producers switch focus over to the markets alone, knowing that we’ll need higher prices due to lower yields.
Many producers made sales at price levels lower than where we are now, consequently they may feel the pressure to try and sell additional contracts at proportionately higher levels in order to average a “better” price.
The uncertainty of yields and where prices are going can also cause paralysis for some growers. Doing nothing may be very short term solution, but keep in mind during times of uncertainty and volatility there are always opportunities. Always be planning your next move; try not to sit on your hands.
There's obviously some frustration among many growers with the challenges and uncertainties we've been dealt this year. Hindsight is 20/20; we can all look back on what we should've done with our marketing plan to this point. Don't let previous decisions impact your judgment and strategic planning for the rest of the year. Worrying about what should have happened doesn't matter at this point. Build your plans for success from here forward.
Stay Margin Focused. Firstly, recalculate your cost of production. Be 100% sure that you know your costs per/acre and per/bushel. Once you're completely confident about your costs, you'll be able to calculate the expenses you have covered with your current marketing. You'll also want to run various scenarios to determine yield and price combinations which accomplish your margin goals. In many cases price and yield may fall short of a positive margin. This is where crop insurance comes in. Be sure to stay in contact with your insurance agent, discussing your crop conditions and expected revenue coverage’s. Lastly, consider tools for protecting these higher price levels. Put options may be one of the best tools, especially for covering bushels that are too risky to forward contract.
As stated in the past, I have numerous tools designed to help you calculate different scenarios. Feel free to contact me with questions or to request margin management tools.