Commodity marketing requires constant study yet pays dividends
Although many commodity experts missed out on selling soybeans at their peak near $12 in June, producer April Hemmes of Hampton, Iowa, proved to be an exception. She sold bushels for this year and 2017.
“I said, ‘This is a gift,’” recalls Hemmes, owner and operator of her 1,000-acre grain farm. Storage is limited on her operation, so she tries to have all old-crop corn and soybeans sold by July 1.
Seasoned producers say those precious moments of planning behind a desk hold the best profit potential of just about any other activity on the farm. Basis, multi-year sales and education on key fundamentals and technicals are all on operators’ minds as low commodity prices linger.
Hemmes studies marketing strategies from November to April with a group of about 20 women who farm in Iowa. The north-central Iowa operator had sold 30% of her anticipated corn bushels as of mid-October and had about as many soybean bushels sold by that time.
Grain from Hemmes’ farm goes to a local ethanol plant and a cooperative two miles away. She routinely studies basis levels, margins, charts and cash contracts to get a feel for when to sell the remainder of her crops. “I try to stick with what I have planned, but there’s always something else that’s going to come along,” she says.
What Does It Mean To Me?
• Cater to local end-user needs when planning grain sales.
• Set marketing targets on the calendar but be flexible and adapt as needed.
• Study trends, charts and strategies with other farmers and team members.
For her, marketing is synonymous with earning a living as a full-time farmer. “I knew that I could work as hard as I could on the farm and do the best job that I could,” Hemmes says. “But unless I marketed that crop correctly, I wasn’t going to make money at the end of the day.”
The farm also does batch-to-arrive contracts (the local term for hedge-to-arrive) and monitors basis cycles from year to year.
Basis Baseline. Futures and options drive corn marketing decisions at Paulman Farms, a 10,000-acre operation in Sutherland, Neb., including corn, popcorn, dry edible beans and other crops.
“We’re basis traders,” says owner Roric Paulman, a 2015 Top Producer of the Year finalist, whose operation is within 100 miles of more than 1 million cattle on feed. “We are always in a three-year cycle on marketing. We trade last year’s crop with options, staying out of a speculative position. Optimizing profitability is the goal. Then, you’re trading the current year and the next year concurrently—sometimes even two years out.”
By July each year, the farm closes its book on old-crop corn sales.
Paulman also raises dry edible beans and other grains whose marketing is dictated in part by Chicago Mercantile Exchange activity and in part by end-user contracts. “Popcorn is a multiplier off of corn, milo may be trading 50¢ to 70¢ under the board,” he explains. “That gives you an opportunity to contract, hedge and trade it again.”
The operation aims to make commodity sales within 10% to 15% of its break-even price or higher whenever it’s possible.