Kub's Den

The Answer is Almost Always 'Sell Some Grain'

Elaine Kub
By  Elaine Kub , Contributing Analyst
Selling grain is the final step of the farming job description: turning seeds, soil and sunshine into cold, hard cash. (Graphic by Elaine Kub)

Farmers: Sell some grain.

I offer you this advice without even knowing what the price is going to be this week or what the futures market is doing on this particular day; I offer this advice without knowing your individual cost of production, without knowing your marketing "goals," without knowing anything except that any time a farmer starts wondering if it's a good time to sell grain, the answer is almost always: "Yes."

Therefore, even more than usual, this shouldn't be interpreted as specific trading advice for this day or this price level or for any specific person. I won't be rolling out any quantitative data or charts this time; just my own philosophical musings. I'm not making a prediction of market movement, and there is still always a risk of loss when trading grain or grain futures and options.

Rather, I'm offering this advice to anyone who gets stressed out about these matters and would like to sleep more soundly at night. Despite not always selling my own grain at a pace or a price that I'm proud of, I'm offering this note to fellow farmers out there, particularly young farmers who are still learning to navigate the psychological stress of marketing grain. If it helps to read it on a screen or have someone say it to you: "Sell some grain."

The act of selling grain is difficult, or even terrifying. When markets are flailing up or down by 15 cents each day, the choice to sell a single truckload of soybeans today versus tomorrow can mean being $135 either richer or poorer. If a farmer was (recklessly) planning to sell an entire year's worth of soybean production on one day -- let's say 25,000 bushels -- then one day's price movement could mean $3,750 either way. The difference between selling all 25,000 bushels at the June high of $15.84 versus the July low of $12.88 would be $74,000. There are paralyzing consequences to getting it "right" and tremendous fear of getting it "wrong."

Still, I say: "Sell some grain."

Actually, I say: Don't plan on achieving your rightness or wrongness all on one risky day, one roll of the dice. And don't get paralyzed into doing nothing, because doing nothing is what traps cash-strapped farmers into selling 18-month-old grain at prices $3 lower than what they could've had at harvest and paying a dollar's worth of storage fees for the privilege.

Think of it this way: The whole job of farming is to take seeds, soil and sunshine and turn them into cold, hard cash. If you do all the rest of it -- calibrate the planter, manage the nutrients, spend 20-hour days in the combine -- but never do the last bit (turning the grain into cash), then you're not farming. You're operating a cute horticultural experiment, not a commercial business. The selling of the grain is as fundamental to the job description as any of the rest of it.

When people ask me if they should sell some grain, I assume there is probably something that triggered the question -- maybe they need some cash to service some debt, or maybe they remember the seasonal tendency of grain prices to sink at certain times of year, or maybe they just heard the price on radio and thought, "That sounds pretty good." All of these are valid reasons to sell some grain. It may not be at the highest price of the year, but here's the thing: The highest price of the year may not be available anymore. And more importantly, selling at the highest price of the year isn't in the job description. Selling grain is.

Don't let the fear of missing out or decision paralysis trip you up from the one thing that will complete your long task list from this farming season. "Sell some grain."

I say it's "almost" always a good time to sell some grain, and there are a few exceptions. If the price is lower than your cost of production and you have some reasonable hope that a future seasonal pattern may bring it up above your cost of production, well, then just beware of the potential treachery of that hope. Beware of confirmation bias as you analyze the market's potential. If you have a near certainty of some fundamental bullishness coming down the line (the 2012 drought, the Russian invasion of Ukraine), then a farmer might reasonably wait before selling some grain. But real certainty is much rarer than you think. If you find your mind searching for one of these excuses to avoid this important but difficult task -- selling some grain -- then recognize them for what they are ... excuses.

Harvest season sometimes presents the lowest prices of the marketing year ... sometimes. That would be an excuse not to sell grain for the next month or so. However, there have also been notable years when the corn market's annual high was achieved in the fall: Nov. 30, 2006; Nov. 4, 2010; Aug. 30, 2011; Aug. 21, 2012; or even Sept. 11, 2002. So, if you're looking for excuses to do something, look at today's historically high prices and at the relentless tendency of commodity markets to eventually revert back toward the cost of production -- that's an excuse not to wait around and pay storage costs. "Sell some grain."

Here's a note to ward off all the snarly emails I'm about to get: Yes, I'm aware that cost of production is high this year, and it gets even higher in droughty regions when your initial input costs will now be divided among a disappointingly small number of bushels.

However, just because your cost of production went up, that doesn't mean the market will. Input costs are not a driver of commodity prices, except in the very long term -- longer than you can wait for cash to pay your creditors. Whatever your cost of production this year was, whatever the price may have been four months ago, your only available choice is what's before you today. You can either sell some grain now at "only" x dollars above your cost of production (or "only" x cents above your cost of production), or you can wait, and maybe the market will go up, or maybe the market will go down, but whatever direction it goes will have no relationship to how much money you spent growing the grain.

I'm aware that these are uncomfortable truths. The total lack of producers' control in commodity markets is eternally frustrating. I'm also aware I may sound like a know-it-all, and that someone who takes this advice today might be angry or regretful if unexpected scarcity drives prices even higher over the next few months, or they could be really happy and well-rested because they slept well each night knowing that they made a profit this year. So, if you're wondering about selling some grain right now, and you'd actually really like to sell some grain right now, but you're wavering on the fence about making that decision, and if seeing a little tough love spelled out in words is helpful to you, then print this out for future reference.

When in doubt, sell some grain.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Elaine Kub, CFA is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub.

Elaine Kub