Marketing the ’05 Crop:

A look at what area grain marketing groups have been discussing going into harvest

Compiled by Marlene Dufault

Central Dakota Marketing Club, Carrington ND
One of the big things that have gotten a lot of attention, of course, is the soybean market.  We have been discussing and following the fund activity, particularly what the funds have been doing in the soybeans and corn, pushing the markets to levels much more than what the weather might indicate they might be at.

In addition, we’ve been following the basis on corn, wheat and beans, noticing how it is widening out again as we get closer to harvest, but widening out more so maybe than in other years. Also, we are following closely the premiums and discounts on wheat, as we begin to see these discounts get larger as we get closer to harvest.  With some of the old crop wheat still going out, we are seeing the discounts have not really let up since last year. And now with this crop coming in, the chance for lower proteins again, we are seeing some of those discounts begin to increase in some of the areas in the state. 

Before harvest, we also discussed things on the production end that can affect market discounts. Like looking at additional nitrogen and going with fungicides like Folicur, trying to preserve not only the flagleaf and cut down the disease but also enhance the protein by keeping the quality up there. Trying to stay away from things that will give us a discount which could be from $.50 to $1.50 per bushel on wheat that is already very tight in the budget.  Even at 50 bu/ac, $3.00 wheat is still a tough go. 

We have a number of people in the club that I work with that have done hedge-to-arrive. On hedge-to-arrive, they haven’t all locked in the basis because they were expecting the basis to improve but as we have seen going into harvest, the basis suddenly seems to be getting worse and worse.  We have done hedge-to-arrive, hoping to pick up a better basis improvement into the spring but it hasn’t happened in all cases. But we do use hedge-to-arrive quite a bit because it puts the margin calls back on the elevators rather than on the individuals producers. 

We haven’t discussed much on crop insurance. We spent time on crop insurance last year when we were looking at how much we can forward contract based on our MPCI yields, not to get too far out ahead of what those yields are as far as bushels committed, and so forth. 

One of the things we do is we video conference with Mike Krueger from The Money Farm.  That has been very helpful. We also use ProFarmer, Doanes, commodity price charts and George Flaskerud out of NDSU. We also use a lot of local information as from what is happening in the area, what people are seeing from a discussion standpoint.

– Steve Metzger, Farm Business Management, Carrington Public Schools

Lustre Marketing Club
We have been marketing new crop production, not so much old crop. Using different techniques, trying to shore up the abilities of the group. Sometimes we are rusty and are disappointed from the past year’s experiences and so we try to help the members get going again. 

We have three major grain facilities here and they each offer different contracts. They are not all the same. We have had individuals come in from the elevators and tell us what they are offering.  What I try to do is get information to the members and let them make their decisions. I know that there are hedge-to-arrive and futures fixed done.

We try to update individuals every year. We had one farmer who was a crop insurance agent for many years that kept us abreast of insurance all of the time.  One of the companies in Wolfpoint had an excellent informational meeting regarding insurance and we try to keep all of our members aware of what is out there. The main crops in the area are green peas, lentils, spring wheat, safflower, flax and sunflowers are starting to come in.

Most of us are trying to capture our gain on futures fixes or hedge-to-arrive on different things like that and we are always at the mercy of the local system for the wheat proteins. I know that last year with the low proteins, we had such a bountiful crop and low proteins. Then the elevators later on offer what they call an “any pro bid” and that turned out to be a pretty good marketing tool.  For a lot of people last year, a couple tools we used was taking out a loan on the grain through FSA and then lock in our payback for 60 days and try to sell it. Rather than getting a LDP, we would be getting that discounted on our loan payback then we would come around and try to sell the grain that wasn’t contracted through futures fixed, hedge-to-arrive, or whatever. We would sell on the “any pro bids” last Nov/Dec and that went well. Whether that will work this year or not will depend on where our LDPs will end up being.

– John Kliewer, grower and group leader for the Lustre Marketing Club, Lustre, MT

Fort Seward Marketing Group
We look at markets all of the time and forward contracts on soybeans.  With the recent rally with the corn, some contacted corn at that time. Wheat has been pretty sluggish so there hasn’t been a lot of selling activity as far as wheat goes.  We have had some guest speakers come in, and work with Progressive Ag, Randy Martinson, as far as his advice goes.  We keep abreast on various government programs.  We have in the past worked with local elevators as a group but we haven’t recently done so.

– Virgil Dagman, grower and facilitator for three marketing clubs in the Jamestown, N.D. area

Barnes County Marketing Group
The group actually developed a marketing plan earlier in the year and have been following through with that.  They have pretty much sold everything on the plan.  They have been tracking that, waiting to see what the basis is going to do. They have been developing a plan that markets 75% of their guaranteed crop production which is what crop insurance covers.  Their crops are wheat, corn and soybeans.  They have been working a little bit with elevators trying to get a basis locked in but they haven’t been too successful with that. 

We have had some different speakers in.  We have formed an offshoot group, a separate group within the group and have formed a trading club. And that club actually performs trading and has found that useful. They have talked about using options before calls and puts. This was their way of doing that without having to have so much of the financial risk for one individual trying to do it, so they do it as a group and use it as a learning opportunity to see how things actually work.

– Randy Grueneich is a facilitator of the Barnes County Marketing Group, Valley City, N.D., and Barnes County extension cropping system specialist.

Red Lake Falls Marketing Group
Our group has been discussing a variety of things, crop conditions not only here in our region but also winter wheat and looking at the corn and soybean belt.  Usually in the spring or late winter, we get our breakevens for the past year and then focus on trying to get a price above that as far as forward contracting. We focus a lot on new crop, forward selling and looking at pricing opportunities, and if there is any old crop to sell, try to get a good price with that. There are still a few members with old crop to sell. We’re also looking at soybean options with the volatility of soybeans going on this summer.  A number of producers around here with preventive plant acres were planning on soybeans. The soybean price has backed off now but when it was up higher, they could have possibility used some put options and try to add a little extra income to preventive plant.

As a group, PP hasn’t altered the grain selling plans too much.  Other than the fact that it is a bigger portion of our crop sold. I think as a group no one has a big percentage of PP acres this year. It is just the fact that you forward sold a little bit more of your production from what you figured.

We have also been talking about forward selling up to 65%, which is the crop insurance level.  Personally, I don’t agree with that.  If something happens, I don’t want to use all my crop insurance money to pay off marketing expenses.  In our operation, that crop insurance is meant for the inputs that you put into the crop and trying to cover that if there’s a crop failure.   I differ from the group on that.  I know they were talking about forward selling up to crop insurance levels.

We work with our local elevators hedge-to-arrive, forward cash sales, which has been working well for the group. That is one thing the marketing group has helped in our operation is that we don’t necessarily lock the basis and the futures at the same time. They are two different items in marketing, basis and futures, and both have their seasonal patterns.  I have learned thru the marketing group the seasonal patterns of both and I see the benefit of locking them at different times. We still do cash sales but there are other times when you have a good basis and good futures too.

Every one in a while, we have different elevator managers or their marketing person comes in to speak to us.  We have had Progressive Ag come in, in the past.  Mike Lockhart is our leader and he is always has a good source of information.

– Kyle Mehrkens is a Thief River Falls, Minn. producer

Alvarado Marketing Group
We have talked about working with the local elevators on different marketing strategies but as of yet, haven’t done much with it.

Earlier this spring we have discussed crop insurance, mainly the range of coverage and what our prices would be before it and what we could expect if we had another crop failure.  The elevator manager from Alvarado has come in from time to time to give us information on what is going on. We have discussed the wheat premiums and discounts a little bit in our group but I don’t think we have ever come up with a solution for it.

The weather or PP acres have not affected our grain selling plans and all. We have had some fairly decent rains in the spring but it has dried up now and the crop has come around a bit. We don’t sell as a group, just individually, coaching each other into executing our plan. We keep looking at the charts, trying to get a direction on which way the markets are going.

– David Nelson, Warren MN producer

MN Marketing Groups
We have been looking at the strategies for wheat.  When we had LDP numbers a while back that were rather high even before harvest started, we were working on LDPs, deciding if protein was going to be an issue.  We have done a fair amount of pricing of wheat, on just futures fixed positions on wheat, with the idea that we wanted to take and grab the LDPs during harvest and hopefully lock in the basis sometime between now and Thanksgiving, maybe a plus basis or whatever.  We could probably end up with $4.25 - $4.50 if things worked out right, because we got pretty high futures positions.

We continue to monitor and try to get the elevators to work with us and they are doing, I think, a really good job of letting us do futures fixing or hedge-to-arrive. Mid Valley in Crookston, MN, the manager comes to our class frequently and is really good to work with.  The guy at the elevator in Ulen, MN comes in a lot too.

As far as insurance, we looked at the soybeans because the price has been so high on the futures that some of the guys that didn’t have soybeans, but had preventive plant, they could lock in a price on a preventive plant that was probably a dollar or in some places $2 higher than what insurance would give them, so they were looking at buying put options, with the idea that they could lock in that high price. If the price went up in the fall, they would get the fall price.  If it went down, they would still get the price that they locked in during the summer.  Either way, they wouldn’t be stuck with this $5.53 price that was established in February. There have been a few puts on the beans but in most cases it is so expensive that you couldn’t afford it.

We had some of the guys who made a couple of sales early on beans then all of a sudden they never got any more of their beans planted, so they ended up being 100% sold.  I have 2 or 3 that are at 100% sold and they are waiting for the price to drop, they said, so they can get out of those positions because they don’t think they will have the beans. It got to be the end of June and they just didn’t get them planted because it was too wet.

We have tried about everything under the sun to capture wheat premiums/discounts.  We haven’t found a good solution. One thing we have done is have U of M small grains specialist Jochum Wiersma come to a couple of our classes and talk about ideas on adding nitrogen, like when you are putting on Folicur, that last trip over for the fungicide. Adding nitrogen at that time with the idea that we would be getting a little increased protein by 1/2 a point.  We figured we would have to have 1/2 of a point just to breakeven. Other than that, it has been frustrating because nothing seems to work for us.

The disadvantage we have had, I call it the “FSA basis on wheat,” is extremely wide, as wide as I have ever seen it.  The difference between the futures and both the county price has been as high as $.69 which reflects a discount for protein. 

I have been getting emails from producers harvesting and some are in that 14 range.  One guy said in our marketing class that they had 50 bushel wheat and it was running about 13.6-13.8%. It was real nice quality and no scab in it.  They won’t get any discounts at 13.8%.

– Mike Lockhart is a Ulen, Minn. grower and facilitator of several area marketing groups.

More Info on Marketing Groups
For more information about marketing groups in Minnesota, contact Betsy Jensen, ag commodity instructor, Northland Community and Technical College, by email at betsy.jensen@northlandcollege.edu or by phone, (218) 773-4961. 

In Montana, find more information online at  www.montanamarketingmanager.org (Click on Marketing Clubs link)

In North Dakota, find more information about marketing clubs online at www.ag.ndsu.nodak.edu/aginfo/cropmkt/clubs/clubs.htm, which also has resources for marketing groups.  Or, go to http://www.ndmarketmanager.org, and click on “education,” then “marketing clubs.” 

Marketing Groups can find a risk management curriculum online at http://trmep.tamu.edu/cg/list.htm. Here, extension economists from Texas A&M and Kansas State have prepared a series of excellent fact sheets to be used as primary educational handouts or to supplement speakers who have covered particular grain marketing or risk management topics.

Those interested in forming a marketing group can find help in doing so online:  http://trmep.tamu.edu/cg/overheads/rm2-34oh.pdf   (Texas A&M guide to organizing a marketing club) and  www.ag.ndsu.nodak.edu/aginfo/cropmkt/clubs/mcinfo.pdf (A guide to organizing a marketing group by NDSU).