By Dorinda Anderson

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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.

Marketing and extension experts agree that even though the picture looks bleak, and many producers are unsure of their future in agriculture, there are strategies to cut input costs, and enhance marketing opportunities for stored grain from 1998 and grain produced in 1999.

Market Analyst Ray Grabanski with Progressive Ag Marketing in Fargo, ND, suggests preparing a plan for each crop produced. For example, when producing wheat there are two times of the year that are generally optimal to sell – October and November and April and May. During these two times of year the futures market is generally strongest, he says.

However, if storing grain in an elevator, the maximum amount of time to store it is two or three months, Grabanski advises. "You don’t want to pay commercial storage, it is a lot more difficult to make money." An extra four-to-five months of rent will have to be paid to store the grain until May. "You want to be 100% sold by the end of November when it’s stored in the elevator," Grabanski says. "You can set price targets to sell but if the market hasn’t hit those targets, your best bet is to unload it. You can always buy some 10-cent calls back." If buying a 10-cent call option, and the market goes up to 30 cents, Grabanski suggests selling. "Have a target in mind and sell it if it hits that."

If the grain is stored at home and the market has not hit the targeted goal, it is wise to sell at least one-third of the crop by the end of November. With this plan there would still be two-thirds of the grain stored at home. Grabanski suggests that if the market doesn’t hit your target by June 1, it is probably best to sell it anyway. "You can always buy it back with some calls and limit the risk," he says, keeping in mind not all the grain has to be bought back.

Marketing strategies

Generally, selling when the market is strong will help producers avoid the bottoms in the market, Grabanski says. That seems like obvious advice, but is still unheeded all too often. "You should have a plan so you don’t have to sell (last year’s crop) at harvest."

Dwight Aakre, NDSU extension crop specialist in Fargo, says the marketing loan for oilseeds will provide some price support. "If nothing else, you can take out a loan and forfeit it. From a price standpoint, that is most favorable. Next to that, spring wheat has probably the best potential of holding a price due to the shifting acreage."

But to buy calls and to develop a marketing plan often requires some additional training so a comfort level can be reached.

Bob Bahl, CEO of Farm Credit Services in Grand Forks, says that even though FCS is primarily a lender, it helps customers with financial and marketing advice. "As far as loans, we can lock in rates and we encourage farmers to look at fixed interest rates. In these times of low rates, it’s an opportunity they want to look at," Bahl says. "We have created some marketing clubs and have brought some people in to work with farmers."

Indeed, there is a new interest in marketing clubs this winter. Randy Myhre, a Brooks, MN producer, says he and about 25 other area producers got involved in a marketing club last fall with a marketing specialist from Lidgerwood, ND. Participants pay a monthly fee, get a newsletter once a week and then meet once a month to learn more about marketing strategies. The participants are learning more about marketing charts so they will be more comfortable when making marketing decisions, Myhre says.

Those involved in this particular marketing club are not selling any of their 1999 crops yet because the markets are weak. "At $3.20 (for wheat) it doesn’t pay," Myhre says. "Basically what we’re looking for is to contract some this spring if we see a decent market." Myhre says he may look at forward contracting if the price comes up. "I’m trying to generate cash in the fall and I will try to own some grain on paper. If I understand the charts I might be able to market and gain another dime or 15 cents. It’s gotten so tough to market. It’s fun to farm but when it comes to marketing a dime or 20 cents makes a big difference; it’s your profit," Myhre says. Also important to assessing the bottom-line: knowing your cost of production, he says.

At this point, Myhre plans to plant in 1999 about the same as he did last year, planting little or no barley but putting in some small grains for his rotation. His wheat acreage will be down some but not a lot. "I might increase corn and soybeans and I will put in some canola, which worked out well for me last year," Myhre says. "The price stayed decent where everything else has dropped. … We have to look at planting several different things and hit it good somewhere."

Reducing input costs

Reducing input costs is something many producers are looking at. No producer wants to compromise crop performance. But when wheat prices are low — $2.70 a bushel versus $5 a bushel reducing input costs is something marketing and extension specialists suggest.

"You need to cut input costs. You can’t put as much into a crop that is selling that low," says Grabanski. For example, weed control will still be needed, but use less expensive products and do more spot spraying. Instead of having a yield goal of 50 bushels an acre, look at 20 bushels less and use less fertilizer, cutting the rate by 10% to 20%. "And you have to pay close attention to which crops cover the variable costs of production. If it doesn’t, maybe you shouldn’t plant that at all. You will lose less money by not planting than by planting (a money-losing crop). Especially if there is a perennial weed control problem when you will need to put an extra $20 per acre into chemical control."

Reducing fungicide and insecticide applications also needs to be considered, Grabanski says. "Spray the borders first before doing the whole field. Try to cut 10% to 20%; that won’t impact the yield much, probably no more than 5%." Other cost-cutting measures to consider:

• Clean and condition some of your own bin seed for planting.

• Use soil sample results to target fertilizer priorities.

• Avoid excessive seeding rates. Consult with an agronomist or extension expert on a target rate.

• Custom hire for specialized operations and rent equipment you don’t use much.

• Take advantage of currently low fuel prices, buying ahead or using options to lock in a fuel price, using a broker if necessary.

• Seek volume discounts. This is often possible particularly if you purchase all your inputs from a single supplier. Not a big enough order to attract a discount? Then pool your order with neighboring producers.

• Reduce field trips. Look for ways to combine treatment operations and reduce tillage. Band chemicals instead of broadcasting them.

• Try to reduce or renegotiate your land rent.

Consider shared rent, even though it might be more cumbersome than other rental arrangements. With shared rent, the landowners each get a percentage of the crop instead of rent. For example, if a one-third, two-thirds plan has been agreed upon, the landowner would get one-third of the crop as payment. Under this plan, if there is a bad cropping year, the landowner would get less along with the renter.

A multi-year shared rent agreement is better for the landowner and producer, as both would also share in the benefits of a good year, Grabanski says.

He adds that it would not be fair to expect the landowner to only share in the bad years.

"You also need to idle some marginal acreage. If you can get into CRP, don’t quarrel about the seed costs. It is better than nothing," Aakre says.

Many producers often take bare-bones catastrophic crop insurance, or none at all. But if there ever was a year to purchase multi-peril crop insurance, this is the year to do it, Grabanski says, when the government is paying an extra 30% of the policy. This might also be a good year to try Crop Revenue Coverage (CRC), which protects a producer’s revenue whenever low prices, low yields, or a combination of both causes revenue to fall below a guaranteed level selected by the producer.

"CRC can help you make a more confident decision when marketing grain to give you courage to market grain aggressively," says Grabanski.