As any farmer is aware, growing your crop is just the start of being a grain farmer.Having a plan for marketing your grain is a job in itself, but this is where the money is made or lost.
Producers too often get caught up in the movement of markets. As the price increases, there is the wait for the top. The problem is, you only know where the top is after the drop happens. This past year has brought unprecedented volatility to the grain futures market. In the last week of April of 2020, as the effects of the pandemic rolled over the world the grain markets fell. Corn bottomed out at 3.00 1/4 /bu, Soybeans, 8.18 1/2 /bu and wheat fell to 4.68/bu but not until June. This past May we saw highs of 7.76/bu corn, 16.77/bu soybeans and 7.73/bu wheat. Between the extreme high and lows there have been many ups and down along the way.
These market moves also cause ups and downs in emotion is relation to making grain marketing decisions. Marketing regret seems to be a constant in the grain producer’s life. “I should have sold sooner.” “I should have waited to sell.” “I should have sold more.” ” I should have sold less.” Weather adds enough uncertainty to farming without adding the extra pressure of expecting to always hit the market perfectly. Hitting the top of the market every time is impossible.
There are some simple steps that can be taken to remove some of the emotion from the grain marketing experience.
Know your cost of production.
It is important to have a starting point.
What is your land cost? ie rent, mortgage , taxes etc.
What are your input costs? seed, fertilizer, herbicides etc
What are your equipment costs? Loans, maintenance, custom hire etc
What is your personal time worth?
Consider any, and all, expenses associated with growing your crops.
Add up your expenses and divide by your acres planted. This will tell you what you need to make/acre to cover your costs. From there decide where to start pricing grain.
cost of production $500/acre
Soybean acres-typical yield 40bu/acre
$500 / 40 =$12.50/bu
Corn acres-typical yield 185bu/acre
$500/185 = $2.70/bu
Wheat acres-typical yield 75bu/acre
This is a very basic description-different crops have different input costs. You can be more specific or more general, but gather your information. This is also a moving target. This exercise will need to be done on a regular basis to stay current.
From this exercise, you know your starting points. Selling your grain for anything above your cost of production will yield a profit.
Do your homework.
There is endless information available online, in print, on tv and from others in the business about what is happening locally and around the world. It can help you understand why the prices are at their current levels, and help you make a more educated guess as to where you think they may move next. Remember, this is not an exact science, and even the “experts” get stumped.
Selling your grain to the local elevator does not mean that you have to wait to deliver your grain before you price it. Selling at harvest will often yield the lowest price. Historically, the spring months give the best pricing opportunities. The uncertainty of the crops going in the ground is reflected in higher market values. Once the crop is made, the prices will go down. Be realistic with your marketing expectations, some years the market will provide windfalls, but lots of times it won’t.
Most grain elevators and grain merchants will take target orders. Setting a target order allows a buyer to price out a specific amount of grain at a specific time, for a predetermined price. The tonnage, delivery time and price are all set between the seller and the buyer in advance.
-the farmer agrees to sell his local elevator 100mt of corn at harvest if the price hits $290/mt
-the buyer agrees to monitor markets and fill the order when the price hits.
-when the price hits the target, the target order is turned into a contract.
If the market never hits the target, no contract is ever made.
These targets can be changed or cancelled at any time before they are reached. Targeting allows you to not miss the market highs.
In today’s trading world, markets are open almost 18 hours/day. That means something that happens on the other side of the world could effect our markets in the middle of the night. A solid order, will allow you to get the target price, even though we may be home in bed.
Sell in increments.
Selling smaller contract amounts and averaging your total contract values is often a more reliable way to stay on the right side of money making.
If the $290 target hits, consider putting in another at $295. You can set several different targets at once or do them one at a time.
Be open to change
The best laid plans may need to be modified, stay open minded.
These are just a handful of things you can do to will help with your marketing decisions. Talk to your seed reps, your crop advisor, your broker, your local elevator, your banker: get your information and get a plan in place.