Market Outlook: Advisers Tend Toward Incremental Sales

February 4, 2011 04:26 PM
 

For many years, selling early and often provided a great selling base for producers. In the current
volatile market, incremental cash sales tends to be the strategy of choice for the nine market advisers who participate in our Top Producer Adviser Track Records.

While not overcommitting, forward selling in smaller increments (with carry in the market) on the
assumption of an average or better crop yield should have provided a way for producers to reward the market and spread their risk, says Bryan Doherty, senior market adviser, Stewart Peterson Group, Inc.

"I based my sales on a model farm assuming either 100,000 bu. or 200,000 bu. of corn production," Doherty says. At 100,000 bu., a 5% or 10% sale equates to a size that farmers are used to working with, since futures contract size is 5,000 bu.

"I still like selling in small increments because it helps us gradually build a position/average in response to not only market trends but changes in the marketplace," he adds. "As we build an average price early in the season, we can then step up reownership or increase defensive
posturing with paper tools as necessary."

With farms growing in size, selling 5% or 10% increments has worked well, Doherty says.

Seasonal Sales. To keep cash flow risk as low as possible, market adviser Bob Utterback prefers
making seasonal sales and then converting it to cash. Utterback says he likes the flexibility futures offer compared with making a cash sale, and he rolls his hedge positions into a cash sale in a lump sum. He is violently opposed to being long the futures market.

"For 2011 corn, I’m 50% sold in futures but long a call, so it’s a synthetic put," Utterback says of his current marketing plans. "I’ll be 100% sold on 2011 corn by April, primarily because of the profit being offered to the marketplace.

"If you’ve done a good job getting input costs locked in, you should be able to capture profits this year that we haven’t seen in decades," he adds.

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