As you make your marketing decisions in today’s volatile environment, consider these factors, suggests Chris Barron, Iowa farmer and a national financial consultant with Ag View Solutions.
1. Cash Flow
“We always start with cash flow,” Barron says. “Plan now so you’re not making reactive decisions; you’re making a disciplined decision that’s going to bring revenue in.”
2. Margin Objective
Calculate your cost of production then pinpoint a margin or profit objective. “In every other industry, when a business buys inputs to turn around and either manufacture something, rebuild something or resell it, they know what they spent to the penny,” Barron says. “Then when they sell on the other side, they manage that margin.”
For example, if your cost of production for corn is $3.75 per bushel, your margin objective can be 25¢. Then, when corn prices top $4, you start making sales. “It’s amazing how you can manage emotions if you document a plan and use strategic objectives,” he says.
Basis, the difference between local cash prices and the futures price at the Chicago Board of Trade, is a key factor to watch this year, Barron says.
“This fall, for example, end users were paying us to bring the corn to them sooner rather than later,” he says. “When the processor wants it, give it to them.”
4. MFP Payments
Break your Market Facilitation Program (MFP) payment down on a per-bushel basis to know what the money means to your operation and marketing plan, Barron says. For example, a $60-per-acre payment on 200 bu. per acre corn is a 30¢-per-bushel increase in revenue.
“When you’re doing your margin objective, those cents need to be added to appropriately allocate that extra income,” he says. “Then, when you’re planning next year’s crops, you don’t overstate the value of one crop.”
Is It Time to Market 2020 Grain?
After a challenging year, it’s hard to think about 2020 already. But you might want to consider locking in futures contracts, says Todd Davis, University of Kentucky agricultural economist. “For 2015 to 2018 crops, the contracts on the futures market tended to trade in the top third of each year’s price range in the months before those crops were planted,” he says. “Especially in tight financial times, forward contracting at least a portion of next year’s crops will help producers remove some of their risk.”