When It Comes To Grain Marketing...A Broken Clock Is Right Twice A Day
Oct 23, 2017
Market Commentary for 10/20/17
Harvest was in full swing this week. While corn is struggling to dry down in the northern belt, good weather allowed for significant progress on beans. Harvest pressure could continue to pull back prices a little further until harvest is over. Yield reports throughout the Midwest continue to sound generally impressive for both corn and beans.
Speculating or Managing
Many farmers tell me they do well at picking prices. Maybe some do, but many do not. If farmers were good at predicting prices, most would have sold their 2016 crop for over $4.25 and would have their 2017 crop already sold for $4.00. Unfortunately, most farmers didn't get $4.25 for their 2016 corn and few have much 2017 sold. Sadly, many farmers are fooled into thinking they are good at picking prices, when actually they probably have been lucky.
Some farmers have the misconception that I try to predict prices and sell at the high. Unfortunately, I don't know when the market will be at its highest. And here's the thing.....no one else knows either.
Instead I try to "Manage" the market. What does this mean?
Know Your Breakeven Points and Be Prepared to Sell
Since I don't know where the market will go, I need to be prepared to sell all the time. That way I can take advantage of opportunities when they become available. The key is knowing your breakeven points and sell when the market hits adequate profit levels, because that may end up being the top of the market. Every time I sell, I actually hope it's the worst sale of the year.
Consider All Scenarios
I set up trades based upon what is LIKELY to happen, not what I HOPE will happen. While I always hope the market goes higher, I know for sure it won't stay at the top. The prices from 5 years ago won't be available in most years. For instance, the last time futures were $4.50 was 3 years ago. It’s been 4 years since corn hit $5. Therefore, since $5 corn has not happened in the last 3 years, I need to be realistic that it may not happen again for a while.
Nevertheless, I'm still a farmer that needs to make a profit and I will always have more grain to sell. Therefore, I optimize my grain marketing strategy to take advantage of the market if it goes up, but also if it goes down. I even make trades where I profit if the market moves sideways. By taking into consideration multiple scenarios, I reduce my potential risk.
Make A Plan
A plan can be as simple as writing a note on your shop door that tells you to sell some corn at desired levels. When that price comes, listen to yourself from the previous months and remember you always have more corn to sell. Maybe not today, but for sure in 365 days you will.
If you're not sure what prices to write down on the door, start with pulling the following numbers:
- Yields - Pull the average yields for the last three years or even from the last 10 years.
- Expenses - Pull the costs for fertilizer, equipment, seed, gas, etc for the last three years. Other than fertilizer these costs don't adjust much year over year (and even fertilizer price changes don't change overall expenses on a per bushel cost that much).
Plan For a Normal Year
I always plan for a normal year. Some years will be above average, and some will be below, but if I plan for average I will be right most of the time and certainly in the long run. When there is a good year, I bank that profit for the years that are more challenging. This allows me to ride out volatility swings in production, which has a big effect on breakeven points.
Keep Making Adjustments
This plan isn't a "set it and forget it" thing. You'll need to make adjustments as new information is provided. For instance, accepting $4 corn this summer was tough when weather appeared grim, but those that sold are glad they did today (even if it was just on 10%). Knowing this, some farmers may consider selling even just 10% of 2018 crop for $4 if we see it again, in case prices don't rally.
Bottom line - farmers need to stop speculating on prices and trying to hit the top all the time. It's impossible to do every year. Sure, sometimes luck will be on your side, after all a broken clock is right twice a day. But, farmers can't afford to be wrong for too many years in a row. Instead, farmers need to "manage the market" to stay profitable year after year.
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
This email material is for the sole use of the intended recipient, and cannot be reproduced, disseminated, distributed or electronically transmitted, including any attachments, without the prior written permission of Superior Feed Ingredients, LLC.. Even though the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness, and the views and opinions expressed are subject to change without notice. Trading commodities involves risk and one should fully understand those risks before buying or selling futures or options. This data is provided for information purposes only and is not intended to be used for specific trading strategies.