2008 Pre-Harvest Marketing Plans

Ed Usset’s marketing plans establish pre-harvest sales objectives divided into allotted bushel amounts, with pricing targets and sell-by dates.

Since 2001, Ed Usset has been writing and executing marketing plans for a mythical corn and soybean operation in southwest Minnesota and a mythical wheat farm in the Red River Valley.

Mythical, in that they serve as examples for selling plans you can tailor to your own farm. “These are not offered to you as the ‘perfect’ plans – I submit to you that there is no perfect plan,” says the grain marketing specialist for the Center for Farm Financial Management at the University of Minnesota. Rather they are intended as a teaching tool, to show producers what a plan might look like, and the process of how a plan might be implemented.

In his marketing plans, Usset outlines and executes specific pre-harvest and post-harvest marketing plans for a hypothetical farm, which in 2008 will hypothetically produce 89,000 bushels of corn, 24,000 bushels of soybeans, and 25,000 bushels of wheat. Crop insurance is a cornerstone of Usset’s marketing plan for each crop, with a goal of having 75% of insured crops priced by early June.

Usset’s marketing plans establish pre-harvest sales objectives divided into allotted bushel amounts. He sets pricing targets and sell-by dates. Usset has his decision dates clustered in the spring, when the historic seasonal trend for futures prices tends to be higher than any other time of the year. Growers can use whatever bushel allotments, pricing objectives, and decision dates they wish for their own selling plans.

Following is the pre-harvest marketing plans that Usset has in place for his mock-up 2008 wheat, soybean, and corn crops, which he established March 21, 2007, and in which he’s already made sales, when prices at the time were quite attractive.  Since then, time and market fluctuations make some of the sales look better than others – just as in real life. 

Your high school physics teacher taught that everything which goes up must come down, and the markets are no different, notes Stu Ellis, head blogger/editor of The Farm Gate (www.farmgate.uiuc.edu), a marketing/farm management web site affiliated with the University of Illinois. Realize that you won’t always hit the top of the market, he advises; it’s best to strive for a high average selling price.

That’s what incremental selling with a guide such as Usset’s can do: help take advantage of the upswings, and manage the downswings.

Post-harvest and pre-harvest templates that you can use on your own farm, as well as other marketing information, can be found online at www.cffm.umn.edu – click on the ‘Grain Marketing’ link. While you’re at it, you might want to check out Ed’s new book, ‘Grain Marketing is Simple (it’s just not easy)’. It is available online at www.cffm.umn.edu/simple.

Ed Usset’s 2008 Pre-Harvest Spring Wheat Marketing Plan

Expected 2008 production: 25,000 bushels (640 acres @ 38 bushels per/ac)

Objective: Buy crop insurance to protect my production risk, and have 75% of my APH insured wheat crop priced by early June.

• Price 2,500 bushels at $3.45 cash price/$3.80 Sep wheat futures using forward contract/futures hedge/futures fixed contract.
• Price 2,500 bushels at $3.65c/$4.00f, or by March 7, 2008, pricing tool to be determined (“tbd”).
• Price 2,500 bushels at $3.85c/$4.20f, or by April 4, 2008, pricing tool tbd.
• Price 2,500 bushels at $4.05c/$4.40f, or by April 18, 2008, pricing tool tbd.
• Price 2,500 bushels at $4.25c/$4.60f, or by May 5, 2008, pricing tool tbd.
• Price 2,500 bushels at $4.45c/$4.80f, or by May 19, 2008, pricing tool tbd.
• Price my last 2,500 at $4.65c/$5.00f, or by June 3, 2008, pricing tool tbd.

Plan starts on Nov. 1, 2007. Earlier sales will be made at a 35 cent premium to price targets noted above and will be limited to 10,000 bushels. I will consider the December futures contract for new crop sales at a 10 cent premium to September. Ignore decision dates and make no sale if prices are lower than $3.45 local cash price/$3.80 September futures.

Execution of Usset’s ‘08 Pre-Harvest Marketing Plan
In his hypothetical plan established last March, Usset made early sales within his 10,000 bushel limit, at a Sept ’08 Mpls futures price of $5.09. “This will establish a new crop 2008 cash wheat price of about $4.80 per bushel, assuming a harvest basis of 30 under September futures,” Usset writes, in his rationale for the early sales.  “I am reluctant to price any more wheat more than 10 months prior to harvest, so don’t expect any more actions until November 1, 2007.  Seventeen months prior to harvest, I am 40% priced on my 2008 pre-harvest marketing of spring wheat with an average September futures price of $5.09, or a cash price of $4.65-$4.75 per bushel.

Ed Usset’s 2008 Pre-Harvest Corn Marketing Plan

Expected 2008 production: 89,000 bushels (600 acres @ 148 bushels per)

Objective: Buy crop insurance to protect my production risk, and have 75% of my anticipated corn crop (based on APH) priced by early June.

• Price 10,000 bushels at $2.40 cash price ($2.80 Dec. futures) using forward contract/futures hedge/futures fixed contract.
• Price 10,000 bushels at $2.55c/$2.95f, or by March 7, 2008 pricing tool to be determined (“tbd”).
• Price 10,000 bushels at $2.70c/$3.10f, or by April 4, 2008, pricing tool tbd.
• Price 5,000 bushels at $2.85c/$3.25f, or by April 18, 2008, pricing tool tbd.
• Price 10,000 bushels at $3.00c/$3.40f, or by May 5, 2008, pricing tool tbd.
• Price 10,000 bushels at $3.15c/$3.55f, or by May 19, 2008, pricing tool tbd.
• Price the last 10,000 bushels at $3.30c/$3.70f, or by June 3, 2008, pricing tool tbd.

Plan starts on Jan. 1, 2008. Earlier sales will be made at a 30 cent premium to price targets noted above and will be limited to 35,000 bushels. Ignore decision dates and make no sale if prices are lower than $2.40 local cash price/$2.80 December futures. Exit all options positions by mid-September, 2008.

Execution of Usset’s ‘08 Pre-Harvest Marketing Plan
In his hypothetical plan established last March, Usset made early sales within his plan parameters limited to 35,000 bu. at a Dec ’08 corn futures price of $3.99.  He explains: “Representing 35% of my expected 2008 production, this will establish a new crop 2008 cash corn price of about $3.60 per bushel, assuming a harvest basis of 40 cents under December futures. I am reluctant to price any more corn more than 19 months prior to harvest, so don’t expect any more actions until Jan. 1, 2008.  I am 35% sold on my 2008 crop at an average Dec’08 futures price of $3.99, or a cash price of about $3.60 per bushel.”

Ed Usset’s 2008 Pre-Harvest Soybean Marketing Plan

Expected 2008 production: 24,000 bushels (530 acres @ 45 bushels per)

Objective: Buy crop insurance to protect my production risk, and have 75% of my anticipated soybean crop priced by early June.

• Price 2,500 bushels at $5.50 cash price ($6.00 Nov futures) using some form of fixed-price contract: forward contract, HTA, sell futures.
• Price 2,500 bushels at $5.75c/$6.25f, or by March 7, 2008, pricing tool to be determined (“tbd”).
• Price 2,500 bushels at $6.00c/$6.50f, or by April 4, 2008, pricing tool tbd.
• Price 2,500 bushels at $6.25c/$6.75f, or by April 18, 2008, pricing tool tbd.
• Price 2,500 bushels at $6.50c/$7.00f, or by May 5, 2008, pricing tool tbd.
• Price 2,500 bushels at $6.75c/$7.25f, or by May 19, 2008, pricing tool tbd.
• Price my last 2,500 bushels at $7.00c/$7.50f, or by June 3, 2008, pricing tool tbd.

Plan starts on Jan. 1, 2008. Earlier sales will be made at a 40 cent premium to price targets noted above and will be limited to 10,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.50 local cash price/$6.00 November futures. Exit all options positions by mid-September, 2008.

Execution of Usset’s ‘08 Pre-Harvest Marketing Plan
In his hypothetical plan established last March, Usset made sales within his plan parameters limited to 10,000 bu. at a Nov ’08 soybean futures price of $8.26. “This will establish a new crop 2008 cash soybean price of about $7.50 per bushel, assuming a harvest basis of 75 cents under November futures (ouch!),” he explains. “I am reluctant to price any more soybeans more than 9 months prior to harvest, so don’t expect any more actions until Jan. 1, 2008.  I am 40% sold on my 2008 crop at an average Nov ’08 futures price of $8.26, or a cash price of about $7.50 per bushel.”