Planning Your Post-Harvest Sales

Implement time, price guidelines

By Tracy Sayler

Every year, NDSU extension crops economist George Flaskerud develops selling guidelines—marketing plans, as they’re often called—for wheat, corn, and soybeans.  The plan for each crop focuses on selling a percentage of each crop throughout the year, whenever key price objectives or time deadlines (based on times of the year when cash prices are usually the highest) are met. Pricing strategies employed by the plan for each crop are set relative to a goal. For example, selling in the upper one­third of the price range for the marketing year. A more modest goal would be to sell the crop for a price above the seasonal average farm price. That’s a seemingly modest goal, says Flaskerud, but challenging to achieve.

The use of elevator contracts as part of your selling plan makes farm management sense, says Flaskerud, especially on that portion of production that can be produced with near certainty (the first one-third is a good bet in the case of pre-harvest sales).

Cash forward contracts, hedged-to-arrive contracts (sometimes called futures fixed contracts), and minimum price contracts are contract alternatives for making preharvest sales. The best contract for a producer to use largely depends on current and expected futures prices, basis and cash prices.

The put option should be considered as well, because it leaves upside price potential open and does not require delivery. Consider using put options where uncertainty is the greatest. In effect, this would be when uncertainty involves not only price but production, probably the second one-third of production sold prior to harvest.

Generally, selling one-third of anticipated production using a cash forward contract or a futures fixed contract (HTA) and one-third using put options, manages an enormous amount of price risk, says Flaskerud.  A floor price is established on two-thirds of anticipated production, but the price is still open to the upside on two-thirds.

Selling Plan For 2001 Wheat Crop
Flaskerud’s selling plan for wheat, based on July, 2001 supply/demand numbers and a July analysis of the projected profitability of new crop grain storage, strongly suggests selling over half of the new crop by December 1, 2001, or when Mpls Dec wheat futures reach between $3.60 and $3.70.  That’s because the seasonal price, as well as protein premiums and the local spring wheat basis, usually peak in the fall around November or early December, and prices next spring may not necessarily justify storage until then.   

Thus, take the loan deficiency payment on wheat at harvest, if there is one, and sell at least 10% of your wheat crop by November 8, or if Mpls Dec futures hit $3.60. Sell another 25% of new crop wheat by November 15, or when Mpls Dec futures hit $3.65.  Sell another 30% of the crop by November 29, or if Mpls Dec futures hit $3.70. Another seasonal rally usually occurs around April, so sell another 25% of your wheat crop on April 18, 2002, or if Mpls Dec futures reach $3.85.  Sell your remaining wheat crop by April 25, 2002, or if Mpls Dec futures hit $3.95. 

Consider buying out-of-the money call options after making sales if you think weather problems may result in better prices later on. Consider HTA contracts using Mpls Dec. futures.

For durum wheat, use the same selling timelines as those for spring wheat, but use the price goals of $4.65, $4.70, $4.75, $4.90, and $5.00.

Wheat Strategy 2001 Crop Crop Pct Deadline MGE Dec/ Nearby 10 11/08/01 3.60 25 11/15/01 3.65 30 11/29/01 3.70 25 04/18/02 3.85 10 04/25/02 3.95 Dec. 01 high 389.  Evaluate plan after any major market event such as acreage report, significant supply/demand changes, or a weather problem.

Selling Plan For 2001 Corn Crop
Take the LDP at harvest, and sell 10% of your new crop corn by November 21, 2001, or if Chicago Dec futures reach $2.33.  Sell another 25% on Dec. 6, or if Chicago futures reach $2.45.  Sell another 30% of the crop by December 20, or if Chicago Dec futures reach $2.55.  Sell another 25% if Chicago Dec futures hit $2.70, or by May 30, 2002.  Sell the final 10% if the price hits $2.95, or by June 27, 2002.

Current market conditions favor storage hedges with June delivery. Consider a HTA (July) contract on the first one third of your production when price objectives or time deadlines are reached. Use put options (Dec) preharvest on the second third of your production and replace with a storage hedge in November, and use a HTA on postharvest sales. Consider an out-of-the-money call or a minimum price contract after selling if you want to gamble that weather or increased demand will result in price rallies later.

Corn Strategy 2001 Crop Inv’y Pct Deadline CBT Dec/ Nearby 10 11/21/01 2.33 25 12/06/01 2.45 30 12/20/01 2.55 25 05/30/02 2.70 10 06/27/02 2.95 Dec 01 gaps 233 & 256, high 261. Dec. 00 spg high 273. Evaluate plan after any major market event such as acreage report, significant supply/demand changes, or a weather problem.

Selling Plan For 2001 Soybean Crop
Short and long-term market conditions currently do not justify storing soybeans.  Although export demand is strong, South American production and the favorable loan rate for beans will lead the trade to believe that there will be ample supplies of beans again in 2002, keeping a lid on price rallies.

Thus, Flaskerud advises taking the LDP on soybeans at harvest, and selling beans off the combine. It is still possible for weather scares to trigger sales based on price objectives. Thus, sell 10% of the crop if Chicago Nov futures hit $5.20; 25% if the price hits $5.30; 30% if the price hits $5.45; 25% if the price hits $5.70, and the remaining 10% if Chicago futures reach $5.90.

Use put options (November) for preharvest sales on the first two thirds of your production, and a HTA contract on the balance. Sell the put and roll up to a better put in the event higher price objectives are reached.  

A number of marketing tools can be used to supplement these trigger-based grain selling plans for wheat, corn, and soybeans, and the best tool to use depends on timing, market conditions, and the producer’s individual situation. Consult with a professional marketing advisor for more details on advanced post-harvest marketing strategies to consider.

Be sure to review and adjust your marketing plan for each crop as new marketing information becomes available. Adjust the trigger price objectives if necessary, but don’t ignore time deadlines for selling when prices fail to reach stated objectives, Flaskerud urges.  Even if price objectives have been set unrealistically high relative to outlook information, the time deadlines make the plan realistic. Since the time deadlines are based on seasonal price patterns, the plan is sound and producers can feel that they have marketed strategically, even if price objectives are not reached.

Soybean Stragegy 2001 Crop Inv’y Pct Deadline CBT Nov/ Nearby 10 Harvest 5.20 25 Harvest 5.30 30 Harvest 5.45 25 Harvest 5.70 10 Harvest 5.90 Nov 01 gaps 518, 545 & highs 536, 554, 605.  Nov 00 Spring peak 595.  Evaluate plan after any major market event such as acreage report, significant supply/demand changes, or a weather problem.

Flaskerud may be reached by email at: gflasker@ndsuext.nodak.edu