Margin Minute: Seven Questions To Ask Your Broker

April 11, 2017 12:00 PM

Producers should be more diligent about managing cash sales and trading accounts in tandem, says Chris Barron, an Iowa producer with Ag View Solutions.

Ask your broker several questions to gauge whether your marketing strategy needs greater discipline.

“If you can’t answer these questions with a ‘yes,’ or you can’t really answer the question fully and know for sure that you’ve got these things applied,” Barron says, “it may be something you want to think about in your operation with your brokers.”

The questions are:

  1. Does your broker know your cost of production? You broker should know what this is on a five-year yield average, Barron says.
  2. Does your broker know what a 10% sale looks like for your operation? Measure this figure in bushels.
  3. Does your broker know when you make cash sales? Communicate regularly, particularly if you decide to make a sale after hitting predetermined sales targets, Barron says. You might need to make some follow-up decisions, such as reownership of some grain. Alternately, it’s a good idea to simply provide your broker with regular alerts about your marketing activity.
  4. Does your broker know your profit target per bushel? For example, you might be aiming for 20 cents or 50 cents per bushel of margin. You should help your broker understand what sufficient margin looks like for your farm.
  5. Does your broker know your insurance coverage? Let your broker know at which level you purchased crop insurance, whether 70%, 85% or something else entirely. Coverage levels can affect marketing decision-making.
  6. Are you and your broker making disciplined decisions based on your marketing plan?
  7. Do you connect every position in your account to a cash sale? Keep hedge accounts 1:1 with cash marketing, Barron advises.

You need to determine whether you are satisfied with your marketing performance, Barron says. If you’re not, it’s time to revisit these questions and determine the kinds of information you or your broker need to obtain to make better choices.

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