The past four years have drained working capital and equity out of many operations. “Then this tariff issue hits us with a big thud,” says Ray Jenkins, Iowa State University Extension grain market educator. “Now we have more volatility for the grain markets.”
To be a successful marketer, you need a strategy that considers your financial goals, storage capacity and appetite for risk, says Ed Usset, University of Minnesota ag economist. You also need to sidestep these common land mines.
1. Not factoring in your cash flow needs.
“Are there certain times of the year you need to make sales to make payments? Plan ahead and have this cash ready by setting sales deadlines,” suggests Jessica Groskopf, University of Nebraska Extension educator for agricultural economics. This is extra important after multiple liquidity draining years. Think of it as cash-flow marketing, Jenkins adds.
2. Keeping your lender in the dark.
If low prices have you planning to store more grain than normal, let your lender know, says Tim Koch, chief credit officer for Farm Credit Services of America. Both parties need to be aware of this marketing strategy, so they can properly plan borrowing needs. “Nobody wants a surprise if they don’t have enough funds to operate on in 2019,” he says. Share your marketing plan with your lender, Koch suggests. Then your lender can become your accountability partner when it comes to executing and updating the plan.
3. Failing to cash in on seasonal price movements.
Corn and soybean prices are typically highest in the spring and early summer. “December corn futures have gone lower from spring to fall in 14 of the last 18 years,” Usset says. “The seasonal pattern in corn is the strongest of any agricultural commodity.” Although soybeans aren’t as reliable as corn, there’s still a distinct pattern. “Spring time is a good time to get something done with your marketing,” he says. “There is a bigger advantage to selling in the spring then holding it until harvest.”
4. Letting your confirmation bias rule.
“People tend to look for information sources that match their bias of the marketplace,” Jenkins says. “It’s a real struggle.” Find grain marketing news sources and analysts that provide a broad view and don’t swing too heavy bearish or bullish.
5. Not having the labor or time to truck grain.
Farmers need to master logistics such as a grain elevator, says Jenkins, who spent 25 years as a Cargill grain buyer and merchant. “I worked with farmers who produced 2 million bushels of grain and had four or five semis,” he says. “Their biggest downfall was they couldn’t get enough corn marketed in the winter months when they had the labor resources available. This is just as important for guys who have 1,000 or 1,500 acres.” Plan your selling campaigns around logistical targets.
6. Shooting to market the whole shebang.
Don’t be overwhelmed by marketing all your grain at once. Most producers think in 1,000-bu. or 5,000-bu. segments, Groskopf says. Based on your cost of production, set realistic price goals. “Setting prices too high or too low may be detrimental to your plan,” he says. “At minimum, your price targets (pre- or postharvest) should exceed your established cash flow price.” For example, if the average price you want to sell at is $3.50 per bushel and you have five equal quantities to sell, you could set price targets at $3.30, $3.40, $3.50, $3.60 and $3.70.
7. No exit plan for your grain.
“Sometimes we maximize profits, and sometimes we minimize losses,” Usset says. All unpriced grain in your bin needs an exit strategy. Set price and time strategies. Either sell your grain when it hits a certain price or level above the harvest price. Or, make the calendar be your trigger. Sell at regular intervals or plan to move all remaining grain by a certain date.
Find the latest grain and livestock prices and market analysis at agweb.com/markets
Pete's Pick of the Week: 1992 John Deere 4255 2WD
Section 199A: The Rules For Entities