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Issue 32 |
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Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Assocation. |
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Copyright Prairie |
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Taming the Bulls and Bears:Selling Based On Seasonals By Betsy Jensen Many farmers across the Northern Plains have used the same marketing strategies this year: LDP and hold. It's easy to look back and see that spring sales would have been the ideal decision. But we need to look ahead (since our bins are full) and one important factor to watch is the seasonality of wheat. Seasonalities are based on historical trends and have been one of the most accurate predictors of price movement. The most often recognized seasonality is the harvest low. Farmers who are tight on storage space should be the only people selling at harvest because of the low prices. Even if we don't see much downside in the futures prices, there is the weakening of the basis that brings down cash prices. Based on the seasonals, farmers should look to make sales in April and May when prices are generally the strongest. Hold and sell in April would work great, if you didn't have any bills to pay, or a new crop to plant. That's exactly why the seasonal strength is there: No one wants to sell during that time. It's very inconvenient to make old crop sales in April, but this is a great chance to start making new crop sales. Your second best alternative is November sales. Prices don't typically rise as much as they do in April and May, but you can have the money in your bank account 5 to 6 months earlier, and this is usually a very convenient time for farmers to be hauling grain. During November, we're finished with the corn and soybean harvest so those "harvest lows" are behind us, and traders are beginning to focus on demand. In the Northern Plains, there is also a rush to get the final shipments out of Duluth before the ports freeze. You can typically count on a basis and futures price improvement during November. Even if you don't make any cash grain sales during this time frame, look for opportunities to forward contract. Set your own basis "You have to have faith in the guy behind the desk," says Bruce Chwialkowski, general manager of the Farmers Elevator Company of Alvarado, MN. Indeed, if you don't have a good working relationship with your elevator manager, he will be less willing to help you achieve those higher prices. Sit down with your manager, discuss your marketing plans and tell him what you want. If you expect to deliver grain in October, January, and March, set targets not only for the futures market, but also set targets for basis levels. "It's important to start early," says Greg Stocker who farms near East Grand Forks, MN. "You can't just come in one month ahead of delivery and expect to negotiate. I'm already looking at December 2001. I figure $4 futures and I'm looking for a 10 under basis, but I need to start now." Last spring, his marketing group members were discussing a local bid for 20 under at Nov/Dec delivery. Greg called Peavey in Grand Forks but Jeff Blaskowski, the manager, quoted him 35 under (which isn't as good as 20 under). Greg left it at that, but later that afternoon, Jeff called back and offered a 20 under basis. In just one day, Greg's cash price went up 15 cents—and all because he knew the right question to ask. Often, if one elevator can get a good basis offer, it is also available to other elevators. It might take a little researching, but elevator managers just need a tip to get started. Greg said he has a good relationship with Jeff, which made asking for a basis easier. Jeff said he couldn't imagine an elevator not wanting to forward contract grain. "We know the bushels are coming. We can plan freight, logistics and storage and that's why the basis levels can be better." He also cautions farmers to remember what contracts they have on their grain. If you have a hybrid contract such as basis fix or futures fix, and you need to lock in the other half by Dec 1, don't pull it out Nov 15 and expect a good price. Those kind of contracts need to be pulled out at least once or twice a month to evaluate. If you only lock in half your price (futures or basis), you need to be just as aggressive with the second half. Even if you're bullish prices, you can always lock in a good basis and then leave the futures market price open. Planning ahead is the key to finding that good basis, and that might mean planning as much as one year in advance.
Jensen named Marketing Group Coordinator
Jensen farms near Stephen, MN with her husband Brian. Prior to accepting the marketing coordinator position, she worked as a licensed broker with Progressive Ag Marketing, based in Fargo, ND. In her new position, Jensen will be headquartered out of the MAWG office in Red Lake Falls, but will work regionally with various marketing groups to coordinate information flow and activities among the groups. Jensen says that in addition to providing a centralized information hub for the leaders and participants of the various marketing groups, she will also be launching several new marketing groups in the region. "I've worked in grain marketing for the past several years and I really enjoy it," says Jensen. "Farmers are great producers, but generally, poor marketers. I believe the next step toward farm profitability is not by increasing production, but by helping producers increase their prices through improved marketing strategies."
"Taming the Bulls and Bears" is a market education feature of Prairie Grains, made possible by the Minnesota wheat checkoff managed by the Minnesota Wheat Research and Promotion Council. If you have a question or topic you'd like to see addressed in this feature, send it to: Minnesota Wheat Council, attn: Prairie Grains editor, 2600 Wheat Drive, Red Lake Falls, MN, 56750. Phone: 1-800-242-6118. Email: mnwheat@gvtel.net. Betsy Jensen's email: betsyj@nctc. mnscu.edu |
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Betsy Jensen was recently named to the position of
marketing group coordinator, an appointment made jointly by the Northland Community & Technical College and the Minnesota Wheat Research and Promotion Council.
