Within a two-week period this fall, cash corn bids went from the $7.30 range to $6.20. Rapid price moves such as this affect everyone emotionally, whether we like to admit it or not, notes Chris Barron, vice president of Carson & Barron Farms Inc. in Rowley, Iowa, and author of the AgWeb.com blog "Ask a Margins Expert."
"These emotions aren’t necessarily a bad thing. They help us to question ourselves, to make sure our plans and goals are in check," Barron says.
When markets shift, don’t panic. Instead, use the situation as an opportunity to hit the reset button.
"Use this time to recalculate your cost of production," Barron says. "Knowing your actual cost of production is the one part of the equation that you can control and calculate. Assess your previous plans and goals and compare them to what a new marketing plan may look like."
Spend some time answering the following questions in order to develop a clear understanding of your margin goals.
1. At what price level do I have an adequate margin to begin sales?
a. What are my basis opportunities?
b. What are my estimated or actual yields?
c. What percentage of my crop do I sell at a time?
2. What overall profit margin would I be satisfied with?
a. Cash flow requirements?
b. Next year’s cost of production increases or decreases?
3. What marketing tools am I willing to use to reach my margin goals?
a. Cash sales only?
4. At what point do I need to have the current crop sales complete and at what margin level should I start new crop sales?
Invest time working through these questions and put your plans in writing; it will be much easier to be disciplined. A written plan with goals and objectives provides an effective tool for managing risk and opportunity.
As you work through marketing plans such as the one listed above, consider using tools that can simplify your strategy. Below is an example of a margin chart that demonstrates your margin at every price and yield level.
- November 2011