Tips for Commodity Sales

May 31, 2017 02:39 AM
 
Grains

Know available marketing resources to be proactive with decisions

Commodity marketing is a challenge for many producers, let alone young farmers. Yet understanding the tools in your arsenal and knowing when to deploy them is critical for profitability. It will also help capture opportunities. “This is still a supply-and-demand business, and weather still matters a lot,” says Chip Flory, Pro Farmer editorial director and “Market Rally” host. “Yet markets are bigger than ever with bigger risks and bigger rewards.” Three details are essential to making a smart marketing decision, Flory says. Producers must know their production costs, have a good grip of local basis history and take their own pulse to determine whether they are bullish or bearish about the marketplace. 

“Be disciplined when doing basis analysis and selecting marketing tools,” Flory says. “Be flexible when you are considering a crop size (supply) and usage (demand).”

There’s no point in delaying good sales decisions, adds Naomi Blohm of Stewart-Peterson. 

“Make those plans ahead of time,” says Blohm, a senior market advisor. “It’s not a reactive, ‘Oh, I guess I’d better price something because the market’s up.’”

Strategic Timing. Between January and April 1, farmers should plug away at making old-crop sales, Blohm says. They should also begin mapping out cash sales for the new crop because historically, the months of April, May and June provide the best pricing opportunities. 

“A lot of times, that’s a tricky thing for some producers to do because they get concerned [about], ‘Well, I don’t know for sure what I’m going to grow, so how much should I be looking to forward contract?’” Blohm says. “The rule of thumb is to price up to 50% of your expected production on those rallies.”

Good producers will never escape risk, Flory says. “If you eliminate all risk, you eliminate all potential reward,” he explains. “Selling 100% of production at breakeven just to prevent losses removes all potential to profit.”

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