Margin Minute: Profit From A Commodity Marketing Plan

April 10, 2017 12:00 PM
 
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If you plan your commodity marketing decisions early in the growing season, you’ll have a much better chance to lock in profits. That’s the conclusion of Chris Barron, an Iowa producer and consultant with Ag View Solutions. Chances are good that if you wait, you’ll miss your window of opportunity.

“Usually the time to market is when we’re busy doing other things,” Barron explains. “A primary time and example of that is in the spring. You might be underneath the planter working and your hands are greasy and you think about it and you think, ‘Boy, I probably should grab my cellphone and make a call.’ You don’t do it. The next day, the market’s down and you had your opportunity and it’s gone. The key is to be thinking about getting these targets set.”

To seek out profitability, it’s important to determine what your production costs have been, on average, for the past five years, Barron says. “Get to an actual cost of production on a per-bushel basis, whether it’s corn or soybeans,” he says. “We want to make sure we have all of the costs covered. We don’t want a feel-good number.”

Include all costs, such as:

  • Utilities
  • Owner draws
  • Labor expenses
  • Taxes
  • Health care
  • Interest

Then set price targets that provide the desired margin. For example, if your average cost of production for corn is $4.10 and you desire a 30-cent margin, your price target should be $4.40, Barron says. Determine your plan for cash sales, options and more. 

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Comments

 
Spell Check

Zorcon
Western, NE
4/11/2017 02:50 PM
 

  Well duh! Why do you think everyone is sitting below the cost of production? Arrrrgh! What we need is a floor based at least on 70% of the current commodity parity price. First buyers have to pay that price at a minimum. No imports of a commodity that can be grown locally either! Then we don't have to give a rat's ass about the paper traders! Freight also needs to be paid by the last buyer of the raw commodity. That will never happen, but hey why not dream when you're trying to figure out your marketing plan anyway!

 
 

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