Earlier last summer, Scott Berger was standing in front of three whiteboards in his farm office. Each one was covered with color-coded lists of contracts, dates, prices and delivery locations. As he looked at the row of numbers, he thought, “Last year I was begging the market to give me $4 for July corn. This year I’m already at $4, why am I not selling?
“So, I sold a bunch of $4 July contracts,” recalls Berger, who farms with his father in Traer, Iowa. “We’ve been stuck in this trading range for corn, so I know once prices get over $4, it’s time to start selling.”
A constant eye on the markets is a strategy Berger, 32, uses to achieve his top farming goal: Be a better marketer. The risks and rewards in today’s commodity markets are historic, and managing risk is vital. A student of the markets, Berger is keeping his row-crop operation in the black with a disciplined and flexible marketing plan.
“I have learned how to capture the carry by having contracts sold and rolling them. That’s what the elevators do.”
Return To Farming. Berger’s path to farming wasn’t a straight shot. After high school, he went to college and became an electrician. During his seven years in that trade, the farm was never far from his mind. He’d go home to help with field work, driving an hour from Cedar Rapids, where Berger and his wife, Alana, lived at the time.
In the fall of 2012, Berger knew he wanted to be back on the farm. He quit his electrician job and took a semester of classes at a community college. In his baseline marketing class, cost of production was a major focus, and he could see how it would help him make smart decisions on the farm. He spent his nights and weekends deepening his knowledge on marketing basics, which built his confidence to bring something to the table when moving closer to home and joining the farm.
In 2013, Berger made farming his full-time job, working side-by-side with his father, Denny. They became partners, and Denny began transitioning decision-making duties over to his son. This included crop mixes, inputs, landlord relationships and, of course, grain marketing.
At the beginning of each year, Berger starts his marketing plan. “I plug in what old-crop grain I have and my production estimates for the upcoming year,” he says. “I look back on charts and see where there’s resistance or support levels for corn and soybeans and set my price targets off of those,” he says. “Then we pretty much stick to the plan during the year, while being flexible in case of a black swan event.”
Converting his plan to a black-and-white document that includes his cost-of-production numbers helps remove emotion and greed, he says. It also creates an actionable plan.
“Farmers can be indecisive when it comes to grain marketing,” says Joe Vaclavik, market analyst and president of Standard Grain. “They don’t have a plan for different scenarios.”
Meanwhile, Berger has taken an active approach by knowing where his breakevens are and where he wants to sell grain, says Vaclavik, who has consulted with Berger for two years. “He actually acts on the opportunities when they present themselves.”
An Elevator Mindset. The Bergers can store 100% of their annual crop production, which gives them flexibility in selling. “I am a basis fiend and watch it all the time,” Berger says. “There is carry in the market every six months. Why take the profit of 40¢ once, when I can roll it and take a profit of 25¢ every six months?
“This strategy works with current carry in the market,” he says. “I’ve learned how to capture the carry by having contracts sold and rolling them. That’s what the elevators do; they continually have stuff sold and capture the carry. I’m finally moving to the status of a price merchandiser.”
Since 2016, Berger has carried over around 45,000 bu. from the year before. He tries to not hold grain for more than two years and carefully manages its condition in the bin.
Every day, when Berger reviews the markets and his plan, he’s selling three years of crops. Currently, he’s making old-crop sales, and he has priced 25% of his 2019 crops and 10% of his 2020 crop.
“Normally, I’m 50% sold on what I’ll produce before I plant it,” he says. “I’m not afraid to be heavily sold on the board, because I can get out of it with a call. If it’s a good position, I’ll take it off as a hedge or I roll it to capture the carry.”
Marketing should be a daily task for farmers, Vaclavik notes. “Farmers should spend 20 minutes looking at marketing every day. Examine what has changed and see how that affects your profitability.”
Berger uses the basic tools. “You can be a straight cash marketer and take what the co-op gives you,” he says. “The next step is doing hedge-to-arrive (HTA) or futures contract. Then, when basis is right, you marry the two together and make a cash sale. You don’t have to understand were the market is going, you just need to know if it is giving you a profit opportunity.”
In the past few years, Berger has built strong relationships with his local grain merchandisers. He is quick to deliver grain when they are running low, and in return he’s been able to negotiate some basis prices. While it might only be a difference of 2¢ or 3¢, every penny helps now, Berger adds. “What does it hurt to ask? All they will do is tell you no.”
Berger dedicates time and money to his grain marketing efforts. Every year he includes $5,000 in his budget for marketing. “It covers my subscription costs and is there in case I do something wrong,” he says. “You have to pay for your knowledge, so if it’s losing money in the markets, you better learn from it.”
Berger can attribute a marketing lesson or two learned in each year on the farm. A key one is to not be greedy when markets are going up. Overcoming greed, fear and other emotions is tough, but Berger knows it’s required to succeed in marketing.
“A lot of farmers are too emotionally tied to their product,” he says. “We spend so much time growing the crop, and we need to shift more of that time to marketing it. We’ll grow another crop next year.”
Grain marketing is a daily task for Scott Berger. He looks separately at local basis bids and the futures market. This provides a snapshot of both the global and local market fundamentals.
Scott and Alana Berger and their two children, Reis, 5, and Jaide, 2, farm in Traer, Iowa. Alana’s off-farm job as a nurse helps supplement the operation, which Scott joined full time in 2013.
BASIS, BASIS, BASIS
Iowa farmer Scott Berger watches basis bids daily. This is a smart strategy, since basis management is an important marketing tool, says Stephen Nicholson, Rabobank senior analyst for grains and oilseeds. “Grain merchandisers make money by trading the basis or taking advantage of basis opportunities,” Nicholson says. “Farmers can do the same.” Know your production costs, Nicholson recommends, and follow these tips.
- Decode your local supply-and-demand picture. If stocks are adequate, basis values will be wide and are likely to remain wide. If stocks are tight, basis values will be narrow or inverted.
- Look beyond your backyard. It’s crucial to know basis values over a wider geographic footprint to find the best marketing opportunities.
- Know your transportation costs, so you can understand if a higher bid further from the farm is more profitable.
- Study your seasonal basis patterns. This will help identify pricing windows, as well as let you know if current bids should be taken.
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