Grain Merchandiser:

Those With Marketing Plans Took Advantage Of Price
Run-Up

By Tracy Sayler

Never mind that famous speech Michael Douglas’ character Gordon Gekko made in the 1980’s movie “Wall Street.”

Greed, despite Mr. Gekko’s suggestion, is NOT good, especially in the grain markets, with their now you see’em, now you don’t prices.

“Guys could have priced new-crop corn at about $3.00.  At $3.00, you’re going to make some good money. But I know guys who didn’t price any, thinking ‘nope, it’s going to $3.50.’  Now we’ve seen the corn market drop by about a buck.  They missed a good sales opportunity to price new-crop corn, plus they’re sitting on about half of their old crop,” says Gregg Hansen, grain merchandiser with West Central Ag, Ulen, Minn.

He recalls another grower who never forward-contracts new crop production. This spring, when soybeans climbed to near $10, that producer contracted a small amount of soybeans.  “His wife chewed him out for it.  But in hindsight, he’s ahead on those contracted bushels by about a buck and a half.”

Fortunately, Hansen says most of his customers did take advantage of higher prices this spring by selling remaining old crop soybeans and forward contracting at least a portion of their expected ’04 soybean production.  “Most of the guys I work with sold about 30 to 40% of their new-crop soybeans, about double what we normally do,” he says.  “We’ve never been big about forward contracting corn, but we had a lot of guys do more of that too, I suppose about double what they’re accustomed to.”

“Some guys forward priced up to their insured coverage.  If they had insurance coverage on beans up to 75% and an APH of 32 bushels an acre, they pre-sold 32 bushels times 75% times their acres planted for harvest delivery.  And what was left, they bought puts to cover it.  So they were 100% covered on what futures might do and 75% covered on the basis. Now that’s a very proactive farmer.”

Hansen says those with marketing plans tended to do best on taking advantage of the run-up on prices this spring to make new-crop sales, and sell remaining old crop.  “The guys who followed marketing plans with pricing deadlines, they did very well.” Some marketing plans have price triggers and time deadlines for selling; those time deadlines are particularly important to meet, Hansen asserts. It makes sense to base time deadlines for selling at least a percentage of your crop during times of the year when prices are seasonally at their highest.

“One example is to sell some around March 31, around May 10, and around deer hunting season.” Even when prices aren’t what you want, Hansen says the time deadlines help get grain sold that otherwise might fall even lower in price. “This spring, wheat didn’t follow corn and beans as much as producers would like.  Then when the market dropped below $4 cash, the tendency is to want to wait and hope the price comes back.  Then the market falls, and you’re down another 50 cents.  Spreading your sales out using time triggers helps.  If you did that this year, you did well on your marketing plan.” 

A Road Map for Selling Grain

In any business you must have a set of goals and objectives. A marketing plan is a road map to work from. It helps identify where we are going and how we are going to get there. Each marketing year we encounter has some similarity to previous years, but we are still headed someplace we have never been before. We need that map to help us maintain perspective and stay on course.

– Advice from the Texas A & M Extension bulletin “Developing a Marketing Plan,” online at http://trmep.tamu.edu/cg/factsheets/rm3-3.html.  If you don’t already have a marketing plan, use this information to get one in place. Also, go online to www.ag.ndsu.nodak.edu/aginfo/cropmkt/pubs/pubs.htm and scroll down to the online NDSU Extension publication “Seasonal Price Patterns for Crops.” This publication covers eight commonly-grown northern crops, with charts that show seasonal price trends under different scenarios, such as years when new crop supplies were lower than expected, or higher than expected. 

Seasonal price patterns can be used as a guide for developing a marketing plan when they are examined along with current suply and demand information.  Plans can then be made to sell a portion of the crop in the cash market or the futures market.