Grain Selling Tools and When to Use Them

Cash Sales (grain delivered) ...Use when:

• Price in upper 1/3 of price range
• Basis narrow or normal
• Expected price drop seasonal or cycle

Cash Forward Contract ...Use when:

• Price in upper 1/3 of price range
• Narrow or normal basis
• Price above cost of production

Futures (sell position…short) ...Use when:

• Price in upper price range before crop is ready to sell
• Basis wide (means cash is weaker)
• Price movement is unknown or expected to go lower

Future Fixed or Hedge-to-Arrive ...Use when:

• Price is high
• Basis wide
• Price above cost of production

Option (puts) ...Use when:

• Price is high
• Basis wide or unknown
• Unknown risk with price or yield

Delayed pricing contract (grain delivered) ...Use when:

• Price low
• Basis movement unknown
• Expected price to move seasonably or cycle higher

Basis Contract ...Use when:

• Price low
• Basis narrow or plus
• Expect seasonal or cycle highs coming

Storage ...Use when:

• Price low
• Basis wide
• Expected price move higher seasonally or cycle
• Storage available

Government Loan ...Use when:

• Price low
• Basis wide
• Discounts in the market
• Storage available

Futures (buy position…long) ...Use when:

• Price low
• Basis wide
• Basis expected to narrow
• Trend up seasonally & cycle

Option (calls) ...Use when:

• Price low
• Basis narrow
• Trend up seasonally or cycle

Min. Price Contract (grain delivered) ...Use when:

• Price low
• Basis narrow
• Trend up

Source: Mike Lockhart, NCTC Farm Business Management

Year-round Farm Management

January-February: Take detailed inventory of all assets and get actual amounts owed on all liabilities at year-end. Complete prior year accounting, send out 1099s and other required tax documents. Complete farm analysis along with cash flow planning for the next crop season.  Analyze your farm profit data, comparing production income and expenses to the lows, highs, and averages in your area. Review land rental agreements and inputs for the next growing season.

March-April: Finalize financial details so that you’re ready to burn diesel at spring thaw!

July: Make sure accounting is current thru the end of June and compare actual mid-year income and expense records to actuals.

Harvest: Make sure field records are kept to document yields, as well as quality issues along with other management information.

Post-harvest to year-end: Review plan versus actual financials from the past growing season. Make sure records are as current as possible so that quality tax planning/management can take place.  Complete tax management strategies, and any unfinished crop data information.  Take advantage of “early-bird” purchases of farm inputs for the next growing season.

—Minnesota Farm Business Management Program, www.mgt.org/fbm