Selling 200% of Your Grain

By Betsy Jensen, Ag Commodity Instructor, Northland Community and Technical College, bjensen@nctc.mnscu.edu

American farmers consistently produce a bountiful, high quality crop year in and year out.  We are a consistent supplier to world buyers, but yet we live in fear of not having anything to sell.  We hold onto our grain like the “Peanuts” character Linus holds onto his blanket. 

The question seems to be embedded within the psyche of many grain farmers: I better hold onto this year’s crop to sell later, and I better not think about selling next year’s crop, because what if I don’t get another crop to sell next year? 

When marketing your grain, I want you to begin thinking of your crop in terms of 200% (this year’s crop, and next year’s crop) or even 300% (grain from ’03, ’04, and ’05). We just harvested 100 % of our 2003 crop, and some of you may already be buying fertilizer, seed and chemical for the 2004 crop.  Don’t look now, but in a few more months , you’re going to have another crop to sell. The grain markets know this too; if you look at the grain futures, prices are trading into Dec. ’04, and soon into ’05 (Chicago corn futures are already trading into Dec ’05).

I am not advising you to sell 200% of your grain at a time.  That is the absolute last thing I want you to do.  My concern is your neighbor (I realize that YOU would never do anything this foolish).  Fast forward to May 1, 2004, and he’s still holding 75% of his old crop, plus he has nothing sold for the crop that is currently being planted.  He has 175% of a wheat crop at risk of lower prices.  Is that reasonable? What would your banker say? 

Every year I hear farmers say “But I can’t sell that much, what if I don’t have a crop?”  No one has ever said to me “But what if I have a bumper crop?  I won’t have much sold.”  We are absolutely terrified of selling and not producing.

We tend to forget that there is always a crop available to sell. Sometimes the crop is larger or smaller than we expect, but rare is the growing season where there is nothing to sell. 

Look back at your production history, and compare the years when you had A) an above-average crop to sell; B) an average crop to sell; C) a below -average crop to sell; or the worse-case scenario, D) no crop to sell. I am guessing that for most, “D- no crop to sell” occurred the least. It is far more likely that your production history consists of a mix of A, B, and C.  Based on your production history, then, the odds support a mix of A, B, and C in the future.  Yet we remain fearful of D, the least-likely scenario.

Sometimes I think we worry more about losing a few dimes off the price of grain that’s already harvested than the value of a crop still standing in the field. For example, let’s say it’s July 1, and you have 10,000 bu of old crop in the elevator. You toss and turn at night, worrying about this grain. You jump for joy when the market rallies 5 cents, and you kick yourself when the market drops 10 cents. Do you have those same feelings for the 50,000 bu that are out in the field at the same time?  You gain and lose five times as much money for the crop that is in the field, than the crop in the elevator.

I am asking you to begin thinking about more than just your grain stored in the bins or at the elevator. If you want to keep some grain inventory on hand to market, that is fine.  But consider selling a little bit of the unharvested grain to come, just to even things out.  If you own old crop wheat on May 1, that is just fine, but maybe you need to sell some new crop wheat to minimize your risk. 

Each farmer has a different risk tolerance, so you need to set your own parameters for selling.  Just because you don’t “need” the money doesn’t mean you can throw it away.  Try to apply this principle to your entire farm.  Right now you might own 175% of your wheat, 150% of your soybeans, 200% of your corn, etc.  How much of your farm is at risk of higher and lower prices?  You have minimal control over your farm’s production risk, but you have complete control over your farm’s price risk. If you know you’re going to be producing a crop in 2004, you should already be focusing on selling at least a portion of it.

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.