Consider These 3 Common-Sense Approaches to Grain Marketing

November 20, 2018 12:25 PM
 
While it can be tempting to follow whatever is trendy, there are some tried and true approaches analysts recommend farmers consider.

The winter months tend to bring analyst forecasts out of the woodwork. While it can be tempting to follow whatever is trendy, there are some tried and true approaches analysts recommend farmers consider.

  1. Never Store A Short Crop, Always Store A Record Crop. According to Richard Brock, Brock Associates this is a common-sense rule of thumb to follow over the next 12 months. “With that said, this was a large crop, which means it should be stored,” he says. “The news at harvest time was very negative, that’s how market bottoms are made. Marketing plans that worked last year will not work this year.”
     
  2. Consider the ‘Three Buckets Strategy.’ Alan Bruglar of Bruglar Marketing & Management recommends producers split their marketing into three categories or buckets. “The first, the ‘Make Me Do It’ bucket is when prices are at least 20¢ to 30¢ above cost of production,” he explains. “Those sales can be done up to 18 months in advance.” Second bucket sales are those made above cost of production during the growing season for either harvest or Jan. 1 delivery. “In the third bucket, crops are always binned for returns to storage,” he says. “Due to multiyear price volatility, that often presents later profit opportunities.”
     
  3. Understand the Market Has No Conscience. “If prices reach breakeven, there is nothing wrong with selling some of your production. But don’t be too aggressive,” Brock says. “If the market rallies above break-even prices, that’s likely to mean it’s going even higher.” Brock warns producers that the market has no conscience and does not care what a farmer’s breakeven is. “Its job is to ration supply pure and simple,” he says. “In this environment, one might assume a late-summer peak in prices. At that point in time, I would sell remaining old-crop grain in the cash market, forward contracting some of the new and likely using a combination of futures and option strategies to protect the rest.”

Brock and Bruglar are included in the 2019 Bull-Bear Outlook which you can read here.

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