Make it a Point to Sell Some 2002 New Crop Early

Preplant, early growing season good time for sales

Many producers sell grain based largely on where they think the markets are headed.  But don’t bet all your cards on the market outlook. In fact, base 10% of your marketing plan on outlook, and 90% on strategy.

“We need to look at where prices might go, but in the end we really don’t know for sure. If we knew what the market would be, we’d all be great marketers. But we know not everyone sells at the high of the market, and we don’t even know what the high of the market is going to be. If we put a good plan together, using 90% strategy, we have a better chance to capture some better prices and remaining profitable,” says Christian Mayer, a market analyst with Country Hedging. 

There are six variables you should consider when creating a market plan for the 2002 crop:

•  Expected production.

•  How much of your production will be covered by crop insurance.

•  Available on/off farm storage.

•  Realistic price objectives.

•  When you need money.

•  Storage/interest costs.

“If you are going to store grain, the market really has to rally to pay for that storage, and interest costs will accumulate over time. If we know we are not going to store any grain over harvest, look at locking in a decent price.  Maybe even using a forward contract to lock some carry in the market,” says Mayer.  “We need to use realistic price objectives. A lot of marketing decisions are made when you need money.  When a loan is due, all of a sudden you have to get rid of your grain.  Well, if you have that in mind before hand, in your marketing plan, you can plan for that in advance.” 

Your marketing plan should have price and time objectives, Mayer says. Use realistic price targets, and identify times of year when prices tend to be higher, to sell grain if your price objectives aren’t met. “I would suggest using the crop report release dates. We have already past one, January 10. I would suggest using the prospective planting date of March 28 (USDA prospective plantings and grain stocks reports) as the next time trigger date and June 28 (USDA acreage and grain stocks reports) as the next selling date after that, if your price objectives aren’t met.” A calendar of USDA reports to help establish dates to trigger sales can be found online at www.usda.gov/nass/pubs/rptscal.htm.

Another option is to consider basing your marketing plan on four different selling seasons: 1) preplant   2) growing  3) harvest and 4) storage.  “Preplant is the stage you are in right now for marketing the 2002 crop,” says Mayer.  “Maybe you want to consider getting 20% of your 2002 crop sold in the preplant stage.  Typically the earlier you sell the crop, the better prices tends to be. Look also to get 30% of sales done early in the growing season, when prices are usually their strongest. And then we can leave the other 50% up to storage.”

 Forward contracts and different futures and options strategies can be used to help make sales.  “Talk to your elevator, see what they have to offer.  But be sure to look at getting part of your sales done in the preplanting and growing stage. It is a great way to spread out your price risk. That is when prices are typically higher, especially in the deferred months.  The nearby contracts haven’t given us a lot to work with in the last four to five years.  The deferred months are where the prices in a carry market are better.”