Issue 34
February 2001

Library

Home

E-Mail

Back

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.

Copyright Prairie Grains Magazine
February 2001

Sue Martin’s Maxims on Marketing

By Betty Thom

With grain marketing, the past does repeat itself, although not always in the same sequence, says Sue Martin, president of Iowa-based Ag. & Investment Services, Inc. “The challenge is finding the pattern in the charts to help us market our grain,” she says.

The charts do tell us there are seasonal patterns, says Martin, a regular analyst on the nationally syndicated TV program “Market to Market,” with 28 years experience in the grain brokerage business. For instance, the 24th week of the year, around June 16, has proven to be a very good week to market grain.  Further, she expects soybean prices to usually reach a high around the week of September 8-12. Corn usually reaches a high around the same time.

Another rule of thumb is to watch the November soybean futures contract, comparing the last trading day of May to the last trading day of June. If November soybeans close lower at the end of June than at the end of May, sell soybeans. “That’s because the price is likely to head even lower in July and August,” she explains.

Sometimes the best time to lock in a price for your crop is during spring planting, since most farmers are too busy to even watch the markets. Generally up to half of the expected crop can be forward marketed even before it’s in the ground, Martin says.

There’s also an expression in the industry that “bulls get their turkey for Thanksgiving, and bears get theirs for Christmas.” She explains that grain markets have a tendency to rally around Thanksgiving, and decline around Christmas.

In addition to the markets, there are also seasonal patterns to the basis. Basis is the difference between the cash price at the elevator and nearby future quotes. The basis reflects the demand for a commodity. Local basis charts can sometimes be found at public universities, grain elevators or through marketing clubs (local basis information is also becoming established through the online Toolshed Ag Information Network. Go to www.smallgrains.org and click on the Toolshed logo to learn more). Ideally, several years of basis charts should be used so you can compare crop years with similar conditions.

National and global events will weaken or strengthen seasonal patterns—indeed, the charts tell the stories on weather, production, demand, and the strength of the dollar. Studying market charts will give you a sense of how quickly the market should move.

The fundamentals give you a sense of which direction the market is heading. Technical charts indicate when to enter or leave a market. Watching and using the markets will help you lock in your target price. “On our farm we use a worksheet (see below) to establish a target price range, which varies from year to year and farm to farm,” Martin says.

She generally recommends staying close to the money when using options, locking in prices one or two strikes out. When volatility is high, it will cost more to buy puts. A put is an option that gives an investor the right, but not the obligation, to sell a stock, bond, commodity or other instrument at a specified price (the strike price) within a specific time period. It protects you from falling prices. In commodities trading, puts usually refer to options on futures. The buyer of a put is bearish on the underlying futures; the buyer of a call is bullish.

All marketing tools and strategies considered, once you find a price that meets your target, be prepared and willing to sell, Martin says. “Marketing your commodities isn’t about hitting the top of the markets, it’s about making a fair profit,” she says.

 

Establishing a Target Price Range

At the recent Prairie Grains Conference in Fargo, Sue Martin offered the following worksheet to help producers establish a marketing price range:

A) What was my cost per acre last year?  ________________________

B) Is there anything that made last year different from a “normal” year? For example, higher than normal fuel costs or lower-than-average herbicide costs? If so, factor these costs in here. +/- ________________________

C) What is the current rate of inflation? %________________________

D) What is the expected increase in cost of production due to inflation? 
(A +/- B) x C = __________________________________________

E) What is my expected production cost per acre?
(A +/- B) + D = ___________________________________________

F) What can I expect to yield per acre this year? bu/acre_____________

G) What is my expected cost of production per bushel? E/F =_________

H) Add a reasonable profit margin on to your expected cost of production to establish a price goal.  ____________________________________

The range between your break-even point (line G) and your price goal (line H) can be looked at as your target price range. When prices move into this range, you should consider marketing alternatives.