The foundation of successful grain marketing starts with a good plan. Not a generic plan or somebody else’s plan; YOUR plan. There are several criteria by which we build, maintain and execute plans that are specific to a particular producer. Unfortunately many plans don’t get executed or reviewed as intended or modified if and when things change. In light of that, here are five guidelines or strategies to build and execute your grain marketing plan.
First, set a proper realistic goal. This starts with a price outlook…YOUR price outlook. USDA has an estimate, as do we, but how does the national average price or the central Illinois price (what we use) compare to yours? North Carolina or mid-south farmers will have a VERY different basis than Minnesota or North Dakota farmers. Consult your information sources, study what drives your local basis and construct a price range for each commodity for your area. One client told me this year his goal was $5.00 corn. Not impossible, but it was improbable and way too high. Be honest with yourself and set a reachable goal. If you exceed it, then celebrate, but don’t set yourself up for failure with a too lofty target.
Second, establish your risk tolerance. This breaks down into two categories- financial and personal. How strong is your balance sheet? While being financially strong doesn’t give you license to take unnecessary or unadvisable risk, it may allow you to take calculated risks that a weaker producer just can’t. Newer farmers or those that are highly leveraged should be more wary of uncertain strategies or outcomes. Missing the boat is better than sinking the ship. Having priced a lot of grain in a rising market may be hard to take, but it beats the alternative- watching prices plummet with nothing done. Just as importantly, what is your personality? Many well healed producers just don’t like or are uncomfortable with hedge accounts, cash contracts with double-up-bushel provisions, etc. Make sure the steps you take don’t have you losing sleep, damaging family relationships or getting you sideways with your spouse. Especially the latter!
Thirdly, pace yourself. We like using a matrix that has YOUR price forecast along the top and the period of time you plan to market your crop along the left side, with guidelines on what percent of the crop ought to be sold at a given price at a certain time. We find this useful in three ways. It guards against selling too much at once. The biggest marketing mistakes are made not by timing or price, but by quantity. Mainly too much at once, but occasionally too little. If a “good deal” comes along and we are underpriced, the matrix pushes us to accept it and helps determine how much to do. If a so-so offer comes our way and we are already where we planned to be, we can pass on it with confidence.
Next, manage your decision making environment. When the merchandiser calls and you are hurtling down the road in your pickup, racing to put out the latest fire or picking up parts or a hundred other things, you are not in a good decision making frame of mind. Set aside time each week ( like you do for most other things) to review your current marketing, read your limited number of trusted information sources and decide what your short and intermediate term marketing goals are. Place offers if appropriate and then get back to work with the peace of mind that your marketing is under control for the time being.
Finally, close the loop by evaluating your results and your process. Good results can come from good and bad decision making and vice versa. Make sure you are honest with yourself. If you bet it all on red (sold half to all the crop at once) and it worked out, thank your lucky stars but change the process!! If things don’t quite work out, you may have made good decisions but had bad luck. If you were lucky, take note. If you have confidence in your process and things didn’t work out this time, soldier on...if the process is solid, next time will be better.
Written by Kurt Barth, Chief Financial Officer & Marketing Consultant at Brock Associates
Kurt uses his 25-plus years of experience in the financial markets and business acumen to design individualized plans for clients that integrate market outlook, cash flow needs, on-farm storage analysis, debt loads and other factors. He is a botanist by education, earning his B.S. from the University of Wisconsin-Milwaukee in 1979.
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