You know the saying, “if your only tool is a hammer then every problem looks like a nail.” Luckily you have a wide selection of tools in your grain marketing toolbox.
The key is understanding the tools and making a proactive plan, says Chris Barron, president of Carson and Barron Farms in Rowley, Iowa, and a financial consultant for Ag View Solutions.
“There is no surefire way to eliminate our emotional connection to the markets,” he says. “But a plan will allow you to manage the market instead of the market managing you and your emotions.”
Which tools should you pull out when? Start with the basics and build from there, says Jon Scheve, president of grain with Superior Feed Ingredients. “Your grain marketing toolbox should be diverse, so you can take advantage of every opportunity and challenge you will face.”
Scheve shares these explanations of grain marketing tools.
The Hammer
While easy to understand what happens when you use it, hammers don’t offer many options. The hammer is like selling cash grain. You know how it will work because it’s easy, and selling at the right price and time (a direct hit) feels great. But selling at the wrong price or time is hard to fix.
The Screwdriver
The screwdriver is also an easy tool to use but limited in function. It’s similar to just counting on insurance revenue programs or government payments to help set a floor price or make up for any shortfall in prices. It’s an indispensable tool you can’t live without, but it won’t fix everything.
The Crescent Wrench
When you aren’t sure what size of bolt you’ll need to loosen, the crescent wrench comes in handy. This is similar to buying a put or call option. Puts or calls can be the right tool or could cause you frustration. For example, in less volatile markets, options can cost farmers more than they can potentially gain from them.
The Vice Grip
The vice grip is a great companion or primary tool. It’s like forward selling grain to an end user. It can be handy on its own or used with other tools (ex: hedge to arrive, minimum priced contracts or deferred pricing). However, just like the name “vice” suggests, it can lock you in tight with limited options when there are production issues or other end users have higher basis levels when it’s time to move the grain you sold.
Socket Set
Futures, like sockets, provide flexibility to pick the exact selling prices. Deep sockets are like using deferred contracts that allow you to sell late in the year and pick up market carry. Different drives are like futures contracts that allow you to pick the right year to market. Extensions are comparable to how futures allow you to take advantage of basis opportunities. These extra tools are more complicated, heavier to carry and hard to keep organized, but they provide vital flexibility.
Open-Ended Box Wrenches
Sometimes sockets don’t fit, and you need an open-ended box wrench to reach a difficult bolt head. While not as quick as a socket, it can be the perfect tool for a specific, tricky fix. This is like using straddles in a sideways market. While you might not use them all the time, these types of trades can generate a little extra premium when futures aren’t meeting profitable price points. Straddles can complement futures trades.
WD-40
Sometimes you need a little WD-40 to loosen tight bolts. This is like selling calls. When margins are tight, you can use calls to pick up a little extra premium and add to a future sale.
To read Jon Scheve’s “Marketing Against the Grain” blog, visit AgWeb.com/Scheve
