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RSS By: Chris Barron

Chris BarronHave a margins question? Through this blog, you will gain insight into improving your bottom line, as a margins expert answers questions and provides farm business advice.

 

The Marketing Game

Oct 02, 2011

 

It can be frustrating to watch grain markets decline as we've seen during the past couple of weeks. Markets can't go up forever, nor can high prices be sustainable for long periods of time. Inside this bad news, however, there may be a silver lining. This market adjustment gives livestock producers and end users an opportunity to lock in some profitable margins. These lower prices will definitely help to keep demand chugging along. Demand strength is the key to the markets improving as we move forward.
So what can grain producers do in the meantime, during this price break? Here are a couple of activities to focus on until it's time to jump back in the marketing game:
1.       Focus on harvest. This is the best time of year to gather valuable information on a number of different production practices. Taking a short break from the market screen and focusing on harvest is a healthy process. When you come back to the marketing picture, you'll be able to think more clearly, with a better understanding of your production level. Final yield information for the 2011 crop will help you begin to calculate margin opportunities with more confidence.
 
2.       Hit the reset button. We've witnessed corn prices drop over $1.50 and soybeans drop over $3.00 a bushel in a relatively short period of time. Many market analysts are still relatively bullish long-term. Let’s assume that markets trend higher after harvest and into the spring. At what level do you plug in sales for the balance of your 2011 crop? One way to look at this is to calculate specific price levels and tie them to specific margin results. (See my blog from last week: I have a tool which will calculate this quickly and easily.) Determine a margin which you are satisfied with and take advantage of the profit opportunities! Once your grain is in the bin, you have all of the information needed to know exactly what your results will be at every price level.
 
Opportunities for margins like we've had in the grains don't come along very often. Use this downturn in the grain markets to study your numbers, set your goals and take advantage of profits when the markets improve.
 
A final thought: If you don't have cash rental rates set, now is a good time while markets are lower. It's easier to discuss volatility and risk to a landlord when corn is in the $5.00 range instead of the $8.00 range.
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