By John Berry, Penn State University Ag Marketing Educator
Take a look at some different options you have for marketing your grain. Here, we discuss some pros and cons of each.
Marketing grains at harvest is a tried-and-true method. However, becoming more familiar with the range of grain marketing tools allows us to better balance the choices affected by our production risk, acceptable price risk, financial and cash flow needs, and a commodity outlook. No individual marketing tool is appropriate for all situations or all farmers. Understanding these tools may help us become more effective (and flexible) commodity marketers.
Given the below grain marketing tools – we can do some rough calculations on expected net returns from implementing any one of these tools. Securing a good average price and minimizing risk can go a long way towards long-term economic viability for our farm business(s). Alternately, we could go for broke and hope for the best.
Marketing Table
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Cash Forward Contract |
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Pros: |
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Eliminates price risk |
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Eliminates basis risk |
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Is a regular feature of dealing with our normal cash buyers |
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Allows marketing a flexible amount of grain as there are no standard bushel requirements |
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Has no margin money possibilities |
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Cons: |
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Increases production risk as we will deliver contracted bushels even if/when we do not have them |
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Getting a fair basis may be a challenge |
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Institutional risk |
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Forego rising prices |
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Storing On-Farm for Later Marketing |
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Pros: |
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Stretches out the marketing season |
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Allows for flexibility with grain delivery |
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Cons: |
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Grain quality can deteriorate |
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Costs are incurred with shrink, and interest |
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Has price risk |
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Has basis risk |
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Basis Contact |
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Pros: |
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Stretches out the marketing season |
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Can eliminate storage costs |
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Eliminates basis risk |
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Allows marketing a flexible amount of grain as there are no standard bushel requirements |
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May allow partial payment |
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Cons: |
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Has price risk |
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Institutional risk |
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Futures Contract |
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Pros: |
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Eliminates price risk |
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Stretches out the marketing season |
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Very liquid |
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Cons: |
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Has basis risk |
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Margin money may be required |
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Must market in 5,000 (maybe 1,000) bushel units |
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Forego rising prices |
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Options Contract |
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Pros: |
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Eliminates price risk |
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Has no margin money possibilities |
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Stretches out the marketing season |
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Very liquid |
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Cons: |
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Has basis risk |
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Must market in 5,000 (maybe 1,000) bushel units |
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Requires premiums |
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Has limited protection against price movements during contract expiration period |
