For some time now, we have mentioned in our blog the services we have available to help the producer when marketing his anticipated corn production. Starting today and during the first week of each upcoming month we will post a hypothetical balance sheet of how our marketing strategies work to accomplish the desired target selling price. Along with the balance sheet, a summary of how each of the strategies is doing and any changes made in the initial plan to reflect the movement in the current market Logically, the producers using this service have a marketing plan designed especially for their specific needs and how they wish to market their production.
Over the next several blogs we will lay out the specifics of a hypothetical farm and its marketing strategies. We hope this endeavor to describe, track, and follow the strategies throughout a marketing season will show how the process works and give some insight. If you have any questions during the process, email me at email@example.com.
Farm: Let’s assume our producer has a 1200 acre farm in the Midwest. For the 2014 production year, this farm has designated 700 acres to corn and 500 acres to soybeans. Table One is the baseline figures for the farm.
Table 1: Baseline Figures
A storage cost of $.05 per month will only be used if the decision is made to store the anticipated production
SOURCE: UMS Past performance is not necessarily indicative of future results. Although very reasonable attempt has been made to ensure the accuracy of the information provided, Utterback Marketing Services Inc. assumes no responsibility for any errors or omissions.
Assumption: We believe that, with a decent 2013 corn harvest, weak demand, the potential for a great corn crop coming on in South America and the 2014 growing season in the U.S., there will be little reason for December 2014 corn prices to move back above $5.25 unless a weather event is seen. It is more likely for December corn futures to see $4 or below this fall. At this level, our hypothetical farm would be producing corn below the cost of production. Decisions have to be made now before planting preparation begins and time is lost to other jobs on the farm.
First a decision has to be made as to how much profit above the cost of production is desired [normally 5% to 10% above costs would be satisfactory]. Therefore the target selling price for the 2014 marketing season is $5.3025 to $5.555. As of the 1/24/14 close, December 2014 corn futures contract was trading at $4.495 or $1.06 below the high end of our hypothetical selling target. If our core assumption is correct and there is a minimal amount of carry between the deferred contract months, we see only two choices:
• Sell off the combine and reown on paper.
• Store until March or July 2015 on the anticipation carry will widen and hope to possibly sell at a better price is given.
The difference in price can be made up by using all the marketing tools available to best sell the product about to be produced. Now is when decisions should be made regarding insurance, how and when to sell production, marketing diversification, and finally if an event is seen throughout the marketing year what steps will be taken in order to offset risk or defend the decisions already made. All of this is what makes a good marketing plan. For those producers using this service, we have made these decisions with them and individualized a marketing plan to fit their specific needs. Each month, statements will be sent to them, along with our recommendations and outlook for the following month(s). Having this information should help the producer make decisions or adjustments if necessary.
On Wednesday, we will describe two of the four marketing strategies to be followed, their costs and our thoughts on each strategy.
If anyone feels they need to put structure into their risk management decision-making and would like to discuss marketing strategies, call Bob or Laura (1-800-832-1488). We will also try to answer questions in upcoming blogs. We welcome emails: firstname.lastname@example.org or email@example.com.
THIS MATERIAL HAS BEEN PREPARED BY A SALES OR TRADING EMPLOYEE OR AGENT OF UTTERBACK MARKETING SERVICES, INC. AND IS, OR IS IN THE NATURE OF A SOLICITATION. THIS MATERIAL IS NOT A RESEARCH REPORT PREPARED BY UTTERBACK MARKETING SERVICES, INC. BY ACCEPTING THIS COMMUNICATION, YOU AGREE THAT YOU ARE AN EXPERIENCED USER OF THE FUTURES MARKETS, CAPABLE OF MAKING INDEPENDENT TRADING DECISIONS, AND AGREE THAT YOU ARE NOT, AND WILL NOT, RELY SOLELY ON THIS COMMUNICATION IN MAKING TRADING DECISIONS.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
THE RISK OF LOSS IN TRADING FUTURES AND/OR OPTIONS IS SUBSTANTIAL AND EACH INVESTOR AND/OR TRADER MUST CONSIDER WHETHER THIS IS A SUITABLE INVESTMENT. PAST PERFORMANCE, WHETHER ACTUAL OR INDICATED BY SIMULATED HISTORICAL TESTS OF STRATEGIES, IS NOT INDICATIVE OF FUTURE RESULTS. TRADING ADVICE IS BASED ON INFORMATION TAKEN FROM TRADES AND STATISTICAL SERVICES AND OTHER SOURCES THAT UTTERBACK MARKETING SERVICES, INC. BELIEVES ARE RELIABLE. WE DO NOT GUARANTEE THAT SUCH INFORMATION IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. TRADING ADVICE REFLECTS OUR GOOD FAITH JUDGMENT AT A SPECIFIC TIME AND IS SUBJECT TO CHANGE WITHOUT NOTICE. THERE IS NO GUARANTEE THAT THE ADVICE WE GIVE WILL RESULT IN PROFITABLE TRADES.