Get Your Grain Selling Plan in Place for ’04

There’s no ifs, ands, or buts about it: if you consider yourself a professional grain producer, a yearly grain marketing plan needs to be as commonplace on your farm as tractors, trucks, and diesel fuel.

A marketing plan should take into account fundamentals (basic supply and demand factors used to evaluate and predict grain prices) as well as technicals (chart-following techniques and chart patterns used to track market price direction). It should take seasonal price patterns and your local basis into account, as well as your cost of production, storage costs, and breakeven prices.

Price objectives and time deadlines are the two critical components to base sales under your grain selling plan. The scale-up price objectives are different for everybody, but they should be realistic, above the seasonal average farm price and your breakeven if possible. Sell a certain percentage of your remaining old crop and anticipated new crop when price objectives are reached. If price objectives aren’t reached, sell a certain crop percentage by your established time deadlines, which might be based on times of year when crop prices are at their seasonal highs.  It’s that simple.

You might wish to incorporate futures, options, or other elevator contracts into your grain marketing plan.  Or not. It’s entirely up to you, depending on your attitude toward risk and financial standpoint. Whatever tools and strategies used, your grain marketing plan objectives are:

At the minimum, sell at prices that exceed production costs.

Better: Sell for a marketing year average farm price.

Best: Shoot for sales in the top third of the expected price range - a very achievable goal.

Make substantial preharvest sales early after a short-crop year, and when market prices clearly go beyond your price objectives. The biggest nemesis to a marketing plan when markets are bullish is greed. Typically, grain producers hold off on sales in an attempt to sell at the top. Once the market peaks and starts to decline, greed turns to hope that prices recover, so producers are still reluctant to sell. When the market continues to fall, hope turns to fear. Local cash bids are now too low to cover costs of production, so grain remains in farm storage. The market fails to recover. Now, fear has turned to panic. Bills are due and cash grain is sold at a price the producer doesn’t want.

That’s why professional grain producers need to develop and stick to a marketing plan. 

Example Wheat Strategy 2004 Crop

• Sell 1/3-2/3 when price objectives or time deadlines are reached

-- Use HTA (Dec) for HRS & consider OTM calls (Sep). Contract or buy ATMPut (Sep) for durum

-- Limit HTA & other contracts to CRC guaranteed yield

• Buy ATM put options (Sep) on balance when price objectives or time deadlines are reached prior to harvest
• Preharvest sales del’d in Nov
• Roll-up puts if prices reach highest price objectives
• Price objectives above survival breakeven of many & potential to exceed acceptable

Crop   MGE Dec/ Percent Deadline Nearby 10 05/06/04 4.19 25 05/27/04 4.29 30 11/04/04 4.49 25 11/11/04 4.79 10 11/18/04 4.99

Example Corn Strategy 2004 Crop

• HTA (Dec) 1/3-2/3 when price obj’s or deadlines are reached. Limit contracts to CRC guaranteed yield.
• Buy ATM put options (Dec) on balance when price obj’s or
   time deadline are reached prior to harvest
• Preharvest sales delivered during harvest/June depending on
   storage profit potential
• Roll-up puts if prices reach highest price objectives
• Price objectives above acceptable breakeven of many

Crop   CBT Dec/ Percent Deadline Nearby 10 Now 2.90 25 06/09/04 2.95 30 06/23/04 3.05 25 12/15/04 3.15 10 01/22/05 3.45

Example Soybean Strategy 2004 Crop

• HTA (Nov) 1/3-2/3 when price obj’s or deadlines are reached. Limit contracts to CRC guaranteed yield.
• Buy ATM put options (Nov) on balance when price obj’s or time deadlines are reached prior to harvest
• Preharvest sales delivered during harvest
• Roll-up puts if prices reach highest price objectives
• Price objectives above acceptable breakeven of most

Crop   CBT/Nov Percent Deadline Nearby 10 Now 6.70 25 Now 6.85 30 Now 6.95 25 04/28/04 7.20 10 05/26/04 7.80

This article includes information from George Flaskerud, North Dakota State University extension grain marketing specialist, and Gail Atkinson, Alberta Agriculture economist.

The Minnesota Association of Wheat Growers and the North Dakota Grain Growers Association coordinated a number of marketing meetings in North Dakota and Minnesota this winter.  Powerpoint presentations and videos from the various meetings can be found online at www.smallgrains.org .  On the home page, under “In The Spotlight,” click on the link “Regional Marketing Club Meetings via ITV/Conf Call.”