Simplify Your Grain Selling Strategies

Marketing doesn’t have to be complicated to be profitable

By Betsy Jensen
NCTC Instructor, Thief River Falls, MN

The other day I searched for “simple life” on an Internet bookstore, and received 461 items in my search.  The very fact that there are at least 461 books out there focusing on how you might be able to simplify your life obviously means that there is a demand for such topic matter.  It got me thinking that maybe we need to start looking at ways to simplify our marketing strategies as well.  

Indeed, the most confusing marketing strategy might get you the same result as a simple method.  Some of my marketing groups are getting very good at marketing; maybe too good.  We’re starting to look at complicated option strategies, spreads and hybrid cash contracts such as basis fix or futures fix. It’s good to understand how these strategies work, but on the other hand, are we making things more difficult than needed?

My job is to educate farmers on marketing techniques, but I will be the first one to admit that you don’t need to understand options, or be able to read each USDA report to do a good job of marketing.  There are several simple strategies you can use, and still do a great job of marketing.

The most important and the simplest marketing strategy is to follow the seasonal trends. The odds greatly favor a spring high and a harvest low.  This is critical to remember, especially if you have to deliver grain at harvest.  Seasonals aren’t always correct, but selling grain in the spring will work in your favor more often than not.  Spring wheat futures decline approximately 70% of the time from May 1 to Aug 1, and those are better odds than you’ll see at any casino.   Make sure to sell some wheat this spring, even if it’s only a small amount.

Now, this may sound blasphemous coming from someone who works in grain marketing, but I believe that call and put options can be eliminated from your marketing plan.  Some market advisors recommend options as a means of price protection or insurance, and that may be true.  However, for many farmers, options are confusing, time consuming and usually expire worthless anyway. 

I do use options in my marketing plans, but my job is to watch the markets, and I enjoy grain marketing. In my grain marketing strategies, options have a specific purpose, but many farmers buy options because their neighbor does, or their broker recommends it. But those farmers often don’t have a specific reason for owning that option, and they usually end up throwing away 15 cents/bushel. 

Many farmers buy call options to re-own sold grain, but do you really need to re-own that grain?  Is there more grain in your bin or are you planning to plant more wheat this spring?  For those of you who are busy with other farming activities such as planting and harvesting, it might be worthwhile to just forget about options. They require constant attention if you want to make money at them.

On another matter, most farmers assume that to be a good marketer, you must listen to all the radio market updates, read DTN daily and speak with your elevator manager regularly. In my opinion, while it’s good to follow what’s going on, you can also experience “information overload” and become confused about what to do from all the bullish and bearish arguments.

I think everyone can remember a time when a sale was missed because there wasn’t time to watch the markets. In the back of your mind, you already know “If prices get to $(fill in the blank), I’ll get rid of the wheat.” Follow your instincts and don’t become victim to information overload.

Information overload becomes even more dangerous when we only listen to the bullish arguments, which is what most farmers do.  But keep in mind that for every buyer there is a seller, which means half the market is bullish and half the market is bearish. 

I encourage farmers in my marketing classes to attend our meetings every other week, place orders at the elevator or with a broker, and then re-examine those strategies in two weeks at the next meeting.  If you want to sell wheat at $3.50, then call your elevator manager and tell him to sell at $3.50 “good ‘til cancelled.” That order will remain active until you cancel it, so if wheat rallies when you are busy planting, your order will be filled without your constant attention.

Marketing is my job on the farm. I admit that I love it, and sometimes use strategies that are more complicated than need be. If you don’t have the time, interest, or comprehension of grain marketing, then try to keep it simple.  All you have to do is follow these three rules: 1) Sell according to seasonals; 2) Ignore put and call options; and, 3) place a “good ‘til cancelled” order with your grain merchandiser to sell at a particular price. Enjoy this growing season, and remember that marketing doesn’t have to be complicated to be profitable.   

Jensen farms with her husband Brian near Stephen, Minn.  Her market education activities including this column are supported in part by the Minnesota wheat checkoff, directed by the Minnesota Wheat Research and Promotion Council. If you have a question or topic related to marketing that you’d like to see addressed in this feature, call 1-800-242-6118, or email Jensen: bjensen@nctc.mnscu.edu