Are You Making These 5 Grain Marketing Mistakes?

January 7, 2016 12:00 PM
 
Are You Making These 5 Grain Marketing Mistakes?

As a grain marketing economist at the University of Minnesota, Ed Usset knows how challenging the process can be for farmers from year to year.

“Sometimes our goal is to maximize profits, and sometimes our goal is to minimize losses,” says Usset.

Regardless of whether corn and soybean prices are moving up or down, though, Usset has noticed a handful of missteps that end up hurting many farmers’ financials. He outlines them in the new edition of his book, which is titled “Grain Marketing Is Simple: It’s Just Not Easy.”

Wondering if you might be doing the same? Here are five common grain marketing mistakes, according to Usset:

  1. Avoiding pre-harvest marketing. “There are two reasons to make early sales a priority in grain marketing: a strong seasonal tendency for grain prices to decline from planting to harvest, and the opportunity to lock in prices above production costs,” Usset writes.
  2. Failing to track and understand your local basis. “Futures are global, basis is local,” Usset says, and it pays to know your local trends. Do you have an ethanol plant nearby? Are there other end users for your grain? How does the basis they are offering compare to your local elevator? “When an opportunity appears, don’t waste time … act fast and discover how your knowledge of basis can add 5 to 20 cents per bushel to your bottom line.”
  3. Failing to develop an exit strategy. While indefinite holders of grain might win big every once in a while, farmers will do better financially over time if they have an exit strategy in place for their bushels. That might include regular grain sales at set periods of time or sales only when prices hit a certain amount above or below the harvest price. “Price-and time-driven exit strategies are far from perfect, and they are certainly no guarantee of selling at the best price,” Usset writes. “But either approach beats relying on your emotionally clouded judgment of the moment.”
  4. Holding grain too long. While on-farm storage can be an essential marketing tool when prices are low, those bins can also expose you to considerable price risk, especially if you don’t have a plan. “For some farmers, storage is a tool for carrying last year’s marketing problem into the next year and sometimes the year after that,” Usset believes. “The odds are stacked against farmers who hold grain too long.”
  5. Misunderstanding carrying charges. When it comes to selling grain at harvest and re-owning it through call options on deferred futures contracts, Usset says producers really need to know what they are doing and how carrying charges work. “I continually meet producers who think they’ve out-smarted the market when they sell grain and re-own with a call option,” he writes. “If the carrying charges are large, I can only shake my head because they only outsmarted themselves.”

GMISv2

Want to know more? You can find Usset’s book through the University of Minnesota’s Center for Farm Financial Management  by clicking here.

 

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Comments

 
Spell Check

Dennis Engels
218 Bluebird Ct., Ghent, MN
12/19/2016 01:15 PM
 

  Edward Usset was in Marshall at the new Red Baron Hockey Arena speaking for the Univ. of MN. We farmed for 50 years and now our son John and his family are on the 5th generation farm, trying to survive. We would like to have your 2nd edition of Grain Marketing is Simple book to share with our son. Thank you so kindly for coming to Marshall. Merry Christmas to you and your family, Dennis

 
 
Rod
Randolph, NE
1/8/2016 05:58 PM
 

  I never price anything between June 25 and otober 15. This year offered the only exception that you would have done better in July. But my $4 dec corn was just fine. Good pointl037860

 
 
Roger
Kansas City, MO
1/8/2016 08:59 AM
 

  #2: don't get so hung up on basis that you miss a good cash price; the range that basis typically trades in an entire season (outside of the transition) can be less than the range that futures can trade in a day.

 
 

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