Taming the Bulls and Bears

“While farmers like market educators, they love price prognosticators, especially if they’re bullish.”

Steady Selling Better Than Quick-Buck Rallies

By Betsy Jensen
Ag Commodity Instructor, Northland Community and Technical College, betsy.jensen@northlandcollege.edu

I take enormous pride in my job. I work with farmers to teach them crop marketing and risk management, including marketing groups.  Elevator managers have told me they can see a difference in farmers once they join a group.  These farmers understand the different contracts, they understand the risks involved with pricing strategies, and they take the responsibility of crop marketing seriously. 

Those kind of comments are great to hear.  One farmer at a time, my colleagues and I work hard to teach farmers to manage risk, make better marketing decisions, and ultimately improve farm profitability.  So it’s professionally rewarding when we get feedback that what we do makes a difference.

However, we still may not win grain marketing popularity contests, because while farmers like market educators, they love price prognosticators, especially if they’re bullish.

To further elaborate, the University of Illinois Urbana-Champaign recently published results of a study about professional crop marketing advisors, and to sum it up, farmers appear more interested in the price-enhancing characteristics of marketing advisory services rather than their risk-reducing abilities.

Farmers often perceive risk management as applicable only to crop insurance, for farms in a tight financial situation, or for farms contemplating change.  But unless you can afford to sell wheat for $3, beans for $5 and corn for $1.50, managing price risk should be a focal point in your operation – and that involves more than running with the bulls.

During 2004, I’ve been horrified at some of the recommendations put forth by a few professional marketing advisors.  One recommendation was burned into my memory forever: Buy back soybeans on a dip below $10.  That’s right, if soybeans dip below $10, buy ‘em back. Incredible; nothing says “great value” like a bin full of $10 soybeans…

I agree that earlier this year beans could have easily rallied another buck or two, but what business does a farmer have owning $10 soybeans? For that matter, what business does a farmer have owning $7 soybeans, or $4 wheat, or $3 corn? 

But what if South America would have production problems? What if the U.S. had production problems?

Those type of excuses not to sell mean nothing.  There are only a few select times in history when prices have gone above those price levels, and stayed there for any significant period of time. 

Just because you can afford to hold two years worth of crops doesn’t mean it’s OK to do it.  Just because you don’t need the cash today doesn’t mean you don’t have to sell.  Or my favorite excuse, “I don’t want to pay all those taxes.”

I admit that risk management becomes a larger issue for farmers who are in financial trouble, but none of you have money to burn. There are plenty of better places to invest money other than the commodity markets.  It’s your job to find the appropriate balance between risk and reward, and apply those same principles to your crop marketing year in and year out.

Grain marketing can be a lot like football: a go-long, run-and-gun offense might be a lot of fun, but it’s good defense that wins championships.  Similarly, a steady, strategic approach to managing risk and selling grain means more to overall farm profitability than looking for quick-buck rallies.

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: betsy.jensen@northlandcollege.edu .