Grain Marketing in Turbulent Times

Profit potential usually exists every year for farmers ready to make sales.

(Progressive Farmer image by Matthew Wilde)

Grain and fiber farmers can position themselves to capture profit opportunities in 2020 despite ongoing trade wars and market fundamentals that seem to stand in the way.

The key may be having a written marketing plan in place. Market specialists say producers who take that step have the best chance to take advantage of profit opportunities.

"Hope is an emotion. It's not a marketing strategy, and it certainly doesn't pay the bills," says Steve Johnson, an Iowa State University Extension farm-management specialist. "It is the lack of planning and discipline that are adding to stress in these turbulent economic times."

Johnson travels the Midwest educating farmers on grain marketing. He estimates only about 30% of producers have a written marketing plan drawn up months before seed goes into the ground. It's a plan that should include reasonable price and time objectives to meet cash-flow needs based on cost of production and actual production history. Too many farmers wait and "hope" to hit the market high. Sometimes it works. Other times, farmers won't take profits out of fear of missing a bigger payday.

RALLY TIME

December corn on the Chicago Board of Trade rallied $1.10 per bushel from May 13 to June 17, 2019, hitting $4.73 per bushel. A late, wet planting season and production fears spurred the ascent. Johnson says farmers with a plan took advantage of the rally and made incremental profitable sales.

"We have 30% of farmers that are disciplined and making money in 2019, even on rented land," he says. "Then there's the other group that's losing money, maybe big money, because they have a lot of bushels unpriced. When December futures blew through $4.20, $4.40, $4.50, that was the group waiting for $4.80 or maybe $5."

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PLAN TO SUCCEED

Todd Davis, University of Kentucky Extension grain marketing specialist, says a colleague recently called seven farmers they thought would have some sort of written marketing plan -- none did.

"I often say, 'Prayer is not a proactive strategy' when talking with farmers," Davis says. "Come mid-November, hope will be the primary marketing plan for many. That is the time I would least want to be in a bind since there are cash-flow needs for seed, fertilizer, paying off debt and more."

Dave Powell, Udell, Iowa, took advantage of the late-spring corn rally. The grain and livestock farmer booked about 8,000 bushels of new-crop corn with the Cargill processing plant, in Eddyville, Iowa. He made cash-forward contract sales as prices soared well above $4 per bushel. Powell farms 1,500 acres with son, Chad, and has a cow/calf herd. The family typically sells half their projected corn and two-thirds of soybeans before harvest per their marketing plan.

"It works pretty well for us," Powell says. "I know our cost of production and what we need."

Powell averaged $4.05 per bushel for 2018 forward-contracted corn. He also sold several thousand bushels of old-crop corn in early July to Cargill, topping out at $4.54 per bushel. In addition, he sold two-thirds of his old-crop soybeans for $10.25 per bushel, on average, before China slapped on a 25% tariff.

LONG GAME

Barry Alexander, manager of Cundiff Farms, in Cadiz, Kentucky, says that the operation's written marketing plan includes selling crops 16 to 18 months before they're planted.

A 13,000-acre family operation, Cundiff grows food-grade white corn for export, nongenetically modified soybeans, seed soybeans, commercial soybeans, wheat and tobacco. Alexander makes sales based on input costs and production expectations, considering crop insurance coverage.

"Our marketing plan is a living thing that constantly evolves," he explains. "We update it multiple times as prices and crop conditions change. When I see a number far out that's profitable, I will take advantage of those markets."

Anatomy of a Marketing Plan:

Steve Johnson, Iowa State University Extension farm-management specialist, and Todd Davis, University of Kentucky Extension grain marketing specialist, have common recommendations for building a solid marketing plan:

Write it down well in advance of spring planting.

Calculate break-even costs by crop and, if possible, by farm and field.

Determine cash-flow needs for the farm operation and the family, which may dictate when sales are made.

Establish reasonable futures and cash price objectives. This includes number of bushels sold at various price levels and Market Facility Program payments once they are received.

Identify marketing tools to use, such as forward cash, hedge-to-arrive, minimum price and basis contracts. Other tools include futures, hedges and buying put options.

Ascertain marketing time frames based on seasonal highs and lows. For example, April, May and June typically provide the best prices for corn.

Always consider why a market action is needed, which could include cash-flow or storage needs.

Utilize crop insurance as a safety net when making preharvest sales.

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