Small Farms Can Market Grain Just As Effectively As Large Farms

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

Whether you farm 500 or 5,000 acres, the goal of farming is the same: You need to make money.  You plant your crops in the spring, take care of them during the summer and harvest them during the fall. You also need to sell those crops, and that is one area where farm size has an impact.  Some marketing tools are only available in 5,000 bushel increments. That may be 10% of a large farm’s production, but for smaller farmers, they may be forced to sell 50% or more of their crop at one time.  Because of size limitations, some smaller farms might opt to pay less attention to marketing, or give up on it altogether. I often hear “I don’t have enough bushels to even worry about.”

However, regardless of farm size and the number of bushels you produce, you still need to sell those bushels at the highest price available. You pay the same price for seed, fertilizer and chemical as larger farmers, so why should you sell your wheat for 30 cents less?

There are just a few minor changes that need to be made when dealing with a small amount of bushels. One problem is using options, since they trade in 5,000 bushel contracts.  This may actually be to your advantage, since most farmers just throw their money away on purchasing call options.  You can save the 15 to 20 cents a bushel that your neighbor spent on call options to reown his wheat crop.  Although I do like to use options, many farmers never use them, and you can do an excellent job of crop marketing without ever purchasing a call or put option.

In my marketing groups, I have several farmers who often share contracts.  This typically occurs when we’re selling more than a year in advance, such as selling 2005 wheat during the harvest of 2004.  Selling 5,000 bushels over a year in advance can be intimidating to every size farm, but if you’re only planning to raise 10,000 bushels, the fear is even more substantial.  You can share a contract, perhaps between 2 to 5 farmers.  Everyone dips their toe in the water and makes a sale, and you can laugh or cry together when that wheat is delivered, depending on where prices go. 

When selling corn and soybeans, small farms have the advantage of using mini corn and mini soybean contracts, which trade in 1,000 bushel contracts.  They also trade soft red winter wheat in a mini contract, but I typically advise farmers to stick to the hard red spring wheat futures in Minneapolis, since that is what we grow.  While put and call options are not available on the mini contracts, your elevator can easily sell 1,000 bushels of 2005 corn or soybeans today. You can do a futures fix contract for 1,000 bushels of soybeans just as easily as 5,000 bushels. 

Just like the big guys, you can set price and time deadlines for grain sales, based on seasonal rallies. For example, you might make it a point to sell wheat – say, 20% of your new crop – when your local cash price hits $3.75, or by Nov 1. That way you can still take advantage of the seasonal strength of the wheat price, even if my $3.25 cash price is never hit.

To elaborate further, here’s an incremental wheat selling plan for both big and small farms to consider: Sell 1/5 of your crop if the price reaches $4.00 Mpls Dec or by Nov 1; sell 1/5 by Nov 15 or if Dec wheat futures reach $4.20; sell 1/5 if the nearby wheat price reaches $4.40 or by Dec 1; sell 1/5 if the nearby price hits $4.60, or by April 15 and sell the last 1/5 when wheat hits $4.80, or by May 1. Use your own price objectives if those in this example are too low or too high for your taste. The staggered times for selling are based on when the wheat price is at its seasonal highs.

Being a small farmer doesn’t mean you have to be an unprofitable farmer. You might go about marketing a bit differently, but you can and should have pricing objectives. With a few modifications, you can have a marketing plan, just like the big guys.

Read Jensen’s answers to marketing questions online at www.smallgrains.org . At the top of the web page, click on “markets,” then scroll down to “Betsy’s Bears and Bulls.”