Are you struggling with how much grain to sell for the 2011 crop? At what point will the best opportunities for 2012 crop sales begin? What are the information pieces you use to make a marketing decision? Have you historically been good at predicting grain prices? What will input prices do? What yield level can you expect from your operation? These questions are difficult, especially as we face intense volatility in the grain markets.
Sometimes the complexity of decisions can be overwhelming. One option to consider is to determine the information that you do know and try to make educated decisions. Markets can change in the blink of an eye. Developing a structured plan to analyze your opportunities can be a critical solution for making decisions based on goals and objectives rather than emotion. No one can predict grain prices perfectly; however, every one can develop strategic plans which help to manage emotion and uncertainty.
Margin management involves the process of determining yield, price opportunity, and production expense. Assembling this information will provide adequate details to make effective strategic decisions. Another factor to consider is your individual margin goals. What historical margin levels have been profitable and effective over time? What goals are realistic and achievable? How much risk are you willing to take in order to achieve higher price opportunities? Do you know your specific margin with $5.00 versus $7.00 corn? In order to be an effective margin manager these questions must be analyzed.
Here is a tool designed for analyzing your grain margin opportunities.
| | | Margin Opportunity Calculator | | |||
| | | | | | | |
| | Fill in the Tan Boxes | #1, #2, #3 | CORN | | | |
| | Green Boxes Report Information | Results | | | | |
| | | Farm #1 | Farm #2 | Farm #3 | Farm #4 | Farm #5 |
| #1 | Yield | 185 | 185 | 185 | 185 | 185 |
| #2 | Grain Price | $5.00 | $5.50 | $6.00 | $6.50 | $7.00 |
| #3 | Cost per/ac. | $900.00 | $900.00 | $900.00 | $900.00 | $900.00 |
| | Cost per/bu. | $4.86 | $4.86 | $4.86 | $4.86 | $4.86 |
| | Income per/ac. | $925.00 | $1,017.50 | $1,110.00 | $1,202.50 | $1,295.00 |
| | Income per/bu. | $5.00 | $5.50 | $6.00 | $6.50 | $7.00 |
| | Margin per/ac. | $25.00 | $117.50 | $210.00 | $302.50 | $395.00 |
| | Margin per/bu. | $0.14 | $0.64 | $1.14 | $1.64 | $2.14 |
| | Margin -- ROI | 2.8% | 13.1% | 23.3% | 33.6% | 43.9% |
| | | Margin Opportunity Calculator | | |||
| | | | | | | |
| | Fill in the Tan Boxes | #1, #2, #3 | Soy | | | |
| | Green Boxes Report Information | Results | | | | |
| | | Farm #1 | Farm #2 | Farm #3 | Farm #4 | Farm #5 |
| #1 | Yield | 55 | 55 | 55 | 55 | 55 |
| #2 | Grain Price | $10.50 | $11.50 | $12.50 | $13.50 | $14.50 |
| #3 | Cost per/ac. | $600.00 | $600.00 | $600.00 | $600.00 | $600.00 |
| | Cost per/bu. | $10.91 | $10.91 | $10.91 | $10.91 | $10.91 |
| | Income per/ac. | $577.50 | $632.50 | $687.50 | $742.50 | $797.50 |
| | Income per/bu. | $10.50 | $11.50 | $12.50 | $13.50 | $14.50 |
| | Margin per/ac. | -$22.50 | $32.50 | $87.50 | $142.50 | $197.50 |
| | Margin per/bu. | -$0.41 | $0.59 | $1.59 | $2.59 | $3.59 |
| | Margin -- ROI | -3.8% | 5.4% | 14.6% | 23.8% | 32.9% |
This is a fairly simplistic approach designed to help you visualize margin opportunities and compare different scenarios. The three variables mentioned above include, #1 yield, #2 grain price,#3 production cost per/ ac. As you plug in either actual or estimated information it will allow you to evaluate realistic scenarios. No one knows what prices will do, however, of the three variables pricing and markets seems to attract the most attention. Market prices are critical but it’s also important to consider production cost and yield as part of your decision process.
Understanding margin management is the name of the game for success in grain production. We face volatility, technology improvements, weather risks, economy, government regulations, and a host of other unforeseen challenges. As we deal with these external variables it will require different management skills than we’ve used in the past. Compiling information so you can understand your margin opportunities will provide a more clear perspective. Making decisions as opportunities present themselves is one of the most effective ways to keep your operation successful.
If you are interested in receiving the above spreadsheet e-mail me a request.
Also feel free to give me a call or e-mail other questions.
Cbarron@cb-farms.com
319-533-5703
