By Tracy Sayler

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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 Association.

A marketing or selling plan is merely a way to stabilize profits and manage risk. "It’s a means to get rid of that grain — to get a more average price year in and year out," says Sheldon Schmiess, Barnesville, MN, also a marketing club leader and NCTC farm management instructor.

Schmiess says a selling plan should not be viewed as a tool to "get the highest price of the year, or beat your neighbor’s price." The objective also is not to sell when you need money or to avoid taxes. "One of the worst marketing plans you can have is one to help you avoid taxes," he says. "A lot of us end up selling when we need to make a payment or generate cash. Hopefully, a marketing plan will help so you have more cash available."

There are five key things you need to know for making a selling plan:

Your yield per acre
You don’t know your 1999 yield yet, but hopefully you know your five-year average.

Your breakeven price
How much does it cost to raise a bushel of wheat? If you don’t know, that’s one of the first places to start. Shoot to meet your cost, plus 20%. For example, say your direct cost (seed, fertilizer, chemical, crop insurance) is $56 per acre, and your overhead cost (everything else, including family living and loan payments) is $105 per acre. Total cost is $161 per acre, or $3.83 based on a 42-bushel average yield. Cost plus 20% is $4.60 per bushel.

When you need money
You need to know when your bills are due, so you’re not forced into making a payment.

Storage availability
If you don’t have storage, it limits your selling plan options, and you’ll need to plan further ahead on what to do with the next year’s crop.

Your knowledge of and willingness to use various marketing tools
"To me, you need to know the first four things first," says Lockhart. "Then you can ask, ‘what tools can I use and are out there to use, knowing what I know?’"

All farmers talk about horror stories of neighbors or relatives who "lost big" by using different marketing tools. Lockhart maintains, however, that you’ve got more to lose by not using them. "You’ve lost more money listening to Uncle Fred’s marketing stories about losing money than Uncle Fred ever lost," he quips.

Of course, you’ll have cash sales. Be sure to cash forward contract some grain as well. "Go one truckload, if nothing else. But don’t do more than half of your average yield. If it’s 42 bushels an acre, don’t forward contract more than 21 bushels." There’s other tools as well, including options and futures. "Futures don’t always work. You have to know your basis, and know when and where to exercise contracts. Hedge-to-arrive is a good tool, but it was misused by a few, partly because they didn’t understand it. You have to know these alternatives, and know how to use them." Get help or use a broker if need be, Lockhart says, but if anything, "get your feet wet. Invest something in marketing every year."

Sometimes, Lockhart admits, he doesn’t follow his own selling plan. "This winter, new crop beans were $5.50, only 50 cents above my breakeven price. I wanted $1.00 above my breakeven, and didn’t take the $5.50, when I should have priced some."

However, Lockhart gives himself a two-year window to market a crop, a time frame that hopefully will offer opportunities to meet his price goals. "Sometimes, it will be hard to make your break even. You may need to plant, then take the loan and hope for improvement. But if you know the figure you need, and have the window to get it priced, you have a better chance of getting it," he says.

"Taming the Bulls and Bears" is a market education feature of Prairie Grains, made possible by the Minnesota wheat checkoff administered by the Minnesota Wheat Research & Promotion Council. If you have a question or topic you’d like to see addressed in this feature, send it to: MWRPC, 2600 Wheat Drive, Red Lake Falls, MN, 56750. Phone: 1-800-242-6118. Email: mnwheat @ means.net.

KSU economist: Oilseeds may have most market risk

Given this latest USDA information, farmers may want to consider making some additional sales of new crop wheat, feed grains, and oilseeds. Of the three principal crop groups, oilseeds appear to have the greatest downside price risk. Oilseed producers may want to purchase November puts at this time. Wheat prices may hold up until late April or early May, but then, if winter wheat crop conditions are average or better, prices will probably begin a decline of 10-15% off the high it sets in March. Feed grain prices also may find some support until it is clear that the 1999 planting is progressing at an average pace. If corn planting does proceed at an average pace, producers may want to price a substantial portion of their expected crop by purchasing December puts.

(Kansas State University economist Bill Tierney’s reaction following USDA’s March 31 Prospective Plantings Report)