As harvest slogs on across farm country, keep one eye on your grain marketing plan.
“In today’s commodity-marketing environment, sometimes the best opportunities last only days if not minutes,” says Chris Barron, Iowa farmer and a national financial consulting with Ag View Solutions. “The challenge for all of us is knowing whether a price opportunity is good enough.”
Barron recently visit with AgriTalk Host Chip Flory to discuss how to make smart harvest marketing decisions. Here are a few of the items Barron suggests you factor into your plan.
1. Cash Flow
“We always start with cash flow,” Barron says. “You need to know well in advance of when revenue has to come in, and that gives you that element of time to get at least a floor locked in on prices.”
For example, if you need $250,000 for cash flow and you've got 25,000 bushels sold at $3.80, you’ve generated $95,000. But, you still need another $155,000 by the end of the year. If corn is at $3.50 per bushel, you need to sell another 40,000 bushels.
“You want to do the planning now so you’re not making reactive decisions; you’re making a disciplined decision that's going to bring that revenue in,” Barron says.
What is your storage situation? Will you have excess or fall up short? Just because you have storage available, Barron says, doesn’t mean you can become complacent in marketing.
“Work to actually capture the carry,” he says. “Don’t just sit on it.”
3. Margin Objective
Once you know your cost of production for each crop you grow, pinpoint a margin or profit objective, Barron says.
“In every other industry, when a business buys input and plans to turn around and either manufacture something, rebuild something or resell it, they know what they spent to the penny on that input,” he says. “Then when they sell on the other side, they manage that margin.”
For example, if your costs 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, which is the difference between local cash prices and the futures price at the Chicago Board of Trade, is a vital factor to watch this year, Barron says.
“If you look at basis right now, for example, they're paying us to bring the corn to them sooner rather than later,” he says. “I think that's telling us that if we've got some questionable quality issues, we need to be rewarding the processors. When the processor wants it, give it to them.”
Read more on how to analyze basis.
5. MFP Payments
Break your Market Facilitation Program (MFP) payment down on a per bushel basis to have a clear picture of 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 $0.30-per-bu. increase in revenue.
“When you're doing your margin objective, those cents need to be added to that price,” he says. “Then you can appropriately allocate that extra income, then when you’re planning next year’s crops and your reviewing your numbers, you don’t overstate the value of one crop over another.”
Read more smart uses for MFP payments.
6. Grain Quality
With a long and wet harvest, quality will be a concern, as will the logistics of handling grain, Barron says. Determine the best place to store high-moisture grain, whether that’s on-farm or at the elevator.
Listen to an in-depth market discussion on the Ag View Pitch:
Is it Time to Market 2020 Grain?
With harvest far from complete for the majority of farmers, it’s hard to switch gears and think about 2020 marketing decisions. But you may want to at least consider locking in futures contracts for at least a portion of next year’s crops, says Todd Davis, agricultural economist with the University of Kentucky College of Agriculture, Food and Environment.
December 2020 corn futures were trading at $4.07 a bushel on Oct. 25. This same contract was trading at $3.96 a bushel in early September. November 2020 soybean futures were at $9.68 per bushel on Oct. 25, which is among the highest prices so far for that contract. The December 2020 corn contract has not closed higher than $4.22 a bushel, a milestone it reached on July 12. The November 2020 soybean contract has not closed higher than $9.80—an amount it reached in June 2018.
“Producers may find some of the best contract prices for the upcoming crop right now, if the commodity markets follow trends from recent years,” Davis says. “For the 2015-2018 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.”
As the growing season progresses, futures markets for any current year’s crop tend to fall in price beginning in August and lasting through harvest because the crops are no longer at a risk to insects, diseases, weather and other environmental factors, and the market no longer perceives a threat to them. Additionally, if 2020 has typical corn and soybean production levels and a sluggish demand, corn and soybean stocks will increase and push prices lower.
“Especially in tight financial times, forward contracting at least a portion of next year’s crops will help producers remove some of their revenue risks,” he says.