Taming the Bulls & Bears

Kicking Yourself for Selling Too Early?

Forget hindsight, we’d all be perfect grain marketers then. 
Just follow the number one rule in marketing: sell when you can make a profit

by Betsy Jensen, Ag Commodity Instructor,
Northland Community & Technical College,
betsy.jensen@northlandcollege.edu

If you follow this column, you know that on the Jensen farm, hubby does most of the farming, and I make most of the grain marketing decisions. Like many of you, I sold too much too early in 2006, and maybe even in 2007.  I don’t think I made a mistake in doing this, but to keep peace in the household, I thought a letter explaining my position may help. They say communication is important to a good marriage, right?

Dearest Husband: I realize that you are frustrated by my marketing decisions. That you feel I might have jumped the gun a little.  That I might have been too trigger happy too early. I know that you were looking forward to making more and better 2007 wheat sales – until I told you how much wheat I have already sold.  Then you really started to get mad. But really, $4.50 Minneapolis wheat looked great a year ago. That may be where I started, but I kept selling on the way up, and so we will average over $5 futures on the pre-harvest sales.   

I don’t often admit to being wrong, and I am not going to admit that I’m wrong this year. I know you might not believe me, but my marketing plan worked great in 2006, and it is also working in 2007.  Even when I’m wrong, I’m still right.  All husbands should have learned that lesson in pre-marriage counseling.

Look at our records, honey.  Our farm made money in 2006.  The marketing plan I designed and implemented relied on prices going higher, and higher they went!  I wanted to beat the prices we had on the cash flow plan, and we did by at least fifty cents.  The cash flow plan showed us profitable at $4 wheat, and when we beat that price, we made even more money. I know most of the wheat was sold too early, but I didn’t sell everything at once, and those extra bushels you produced brought up our average.

Instead of looking back at 2006, let’s look ahead at what appears to be a profitable 2007. Yes, I have already sold much of the wheat, but we’re going to make money at these prices. I do not need $6 wheat to make money, but I know I won’t make money if wheat drops back to $4.  Yes, I know everyone says we are in a new era of marketing and prices won’t ever drop again, but they said this in 1996 too. I would rather be safe than sorry.  

I have put options purchased on the soybean crop, and most of our edible bean contracts have bottom price limits. We’re guaranteed to make money on those crops if we have average yields.  Much of the wheat has been sold at profitable levels.  Fortunately the co-op sets the price for our sugarbeet crop, so it is not my fault if the price is too low with that one.

Our crop insurance protection doesn’t guarantee us a profit, but it will sure provide a nice soft landing if yields do crash.  We had to spend a little more for federal crop insurance this year, but the higher guarantee makes it a worthwhile expense. 

If we can raise an average crop in 2007, we will make money. No hoping for LDPs or counter-cyclical payments. There is a very rosy outlook for farming in 2007. All good things must come to an end, however, and I do believe prices will go down eventually.  To keep our farm profitable, I have already sold some 2008 wheat.  It was over $5, which was just too good too pass up. You can criticize me for those sales next year, but can you really complain if your worst sale is $5?

 I am excited about our profit potential this year.  I’ve been thinking about we can do with that money. How about a new kitchen? I know you want a new planter, but I think you might need to prioritize. A happy wife is priceless. Again, you should have learned that in pre-marriage counseling… 

So there you have it, my relationship-building letter to hubby that Val Farmer would be proud of.  Do I think the time-tested, age old marketing rules have changed?  Should you abandon spring sales?  The rule that trumps all other rules is: “sell when you can make a profit.”  

With the increased volatility in the market, it is a great time to think about put and call options.  The market changes, and your marketing plans need to change as well. Just always remember to follow the number one rule:  Sell when you can make a profit. If you sold wheat at $5, and that’s a profitable sale for you, don’t kick yourself if you could have sold a month or two later at $5.50. You could just as easily be kicking yourself for not selling at $5, had the price dropped to $4.50. We’d all be perfect grain marketers in hindsight.  Real world grain marketing is selling when we can make a profit, and accepting the fact that this is the best we can do.

Jensen puts her marketing strategies to work farming with husband Brian near Stephen, Minn.  Her market education activities including this column are supported in part by the Minnesota wheat checkoff, directed by the Minnesota Wheat Research and Promotion Council.