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5 Time-Tested Grain Marketing Strategies

07:00AM Jun 24, 2019
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You are facing a slew of uncertainty. Everything from trade negotiations to an abundance of grain to production risk from flooding and delayed planting is causing market volatility. Don’t let these challenges override best practices for grain marketing. Follow these steps.

1. Assess your anticipated production.

Due to flooding and a wet spring, your original production estimates likely need to be updated. University of Nebraska educators and economists Robert Tigner, Jessica Groskopf and Cory Walters suggest you estimate the total production in each of the following categories.

  • Likely normal production. Use actual production history (APH) as your yield estimate.
  • Production that was damaged but still planted on time. Use a slightly reduced APH yield estimate. 
  • Production that was damage and planted late. While you will have production on these acres, too many variable make it difficult to estimate production.
  • Prevented planting. No production on these acres. 

2. Set your marketing percentages. 

Based on your production estimates, determine how much of your production you want to market ahead of harvest. Contracting more grain than you produce can result in a lower revenue if you have to pay a “buy back” fee to the elevator or buy bushels from a neighbor to fulfill your contracts, explain Tigner, Groskopf and Walters.

Remember, you do not have to sell any grain prior to harvest. However, corn and soybean prices are traditionally higher during the growing season than at harvest. Consider updating your marketing percentage throughout the year as you see how your crop progresses.

3. Determine the marketing contract.

Decide which tools are best to implement your plan, says Chris Barron, president of Carson and Barron Farms in Rowley, Iowa, and a financial consultant for Ag View Solutions. For some, a simple cash marketing plan might be sufficient. 

“Some of the best tools available are option strategies that set a price floor yet keep much of the topside opportunity open,” he says. “When volatility is low, option strategies tend to be more affordable for managing risk and reward.”

The key is to adopt action plans before you need them. “It will allow you to manage the market instead of the market managing you and your emotions,” he says. 

4. Establish price targets.

Given greater yield uncertainty, your pre-harvest marketing plan needs realistic price targets. If you set your price targets too high, you may miss opportunities to price grain at its seasonal high. 

To establish a reasonable price target, calculate your production costs to a price-per-bushel number, Barron says. Total costs or cost per acre numbers are not good enough for sale decisions. Determine your realistic profit-margin goal and add that number to your break-even number. 

“A profit opportunity from here is not a guarantee,” he says. “But if you do not have a price target to aim for, you will have no idea when to pull the trigger. Set your sales targets that meet the financial need for your business.”

5.  Focus on what you can control.

“There is no surefire way to eliminate our emotional connection to the markets or to know where prices are going,” Barron says. “Information overload can throw mud into our decision-making toolbox.”

Create a checklist of activities and tasks to ensure you’ve done everything you can do to maximize pricing opportunities. This can include managing basis, updating yield estimates and studying up on different marketing tools.

“Whether your marketing plan is executed with a sophisticated outside consultant or the decisions are your own, it is your responsibility as the executive of your business to ensure disciplined decisions are made,” Barron says. “Use the numbers and the plan instead of emotion when pulling the trigger on commodity sales.”

 

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