Marketing the crop has always been one of the most difficult aspects in farming. As higher production costs have squeezed margins and driven consolidation, crop marketing has taken on a more crucial role in a farm’s success. Why is it that deciding how and when to sell our crop seems to remain low on our list of priorities or continues to be an area in which producers struggle? The answer lies in the depths of the human brain. By now, you have probably heard that two major emotions dominate our decisions or lack of decisions when it comes to producer crop marketing: fear and greed. It is usually the latter of the two (greed and indecision) that is the culprit of most crop marketing mistakes.
As stated earlier, the number one culprit of producer marketing issues is indecision. I’ve said this at numerous producer meetings I’ve conducted, but I think 2012 and $7.00 corn has been detrimental to producer marketing habits in the last seven years. Only recently have producers warmed back up to the idea of forward-marketing grain. My worry is this year, (2019/20) could wreak havoc on producer marketing decisions in the years to come. My plea to you is, don’t let the fear of missing out on the home run prevent you from hitting singles and doubles. Most grain producers tend to be more worried about missing out on upside than fear of downside.
Today’s marketplace offers a variety of methods for producers to manage price risk. Physically, producers can make spot sales, forward sales, and utilize a variety of specialty cash contracts to manage risk with their grain buyers. Financially, they can manage their risk by utilizing futures and options in a brokerage account to mimic many of those cash contracts with the exclusion of basis. A third choice producers can make is to do nothing. I cannot emphasize this enough, doing nothing is a decision. In making the decision to do nothing, the producer who is naturally long in the bin at home, the elevator, in the field, or in the field next year is naked or exposed to the risk of prices moving lower. Let’s say you are a producer with 100,000 bushels of corn in storage and the corn market falls 15 cents overnight. I don’t know many producers that equate that to losing $15,000 while you sleep, but that is what happened. That is an unrealized loss. Perhaps if producers thought that way, they wouldn’t sleep much.
In general, the average producer is not forward-selling enough grain. Over the last 10 years, the producer who forward sold corn on February 1st received an average 30-cent premium over the producer who chose to make spot sales at harvest; that producer was better off making forward sales in 8 out of the last 10 years. A similar pattern can be found in forward-marketing soybeans. Producers who wait to begin forward marketing grain until the middle of that year’s growing season are often frozen by emotion during the narrow window that is sometimes afforded to them. As a result, they do not forward market enough grain and are faced with the decision of paying commercial storage rates, pricing into a low flat price at harvest, or entering into a grain contract in which they are buying the carry. Producers should strive to leverage the carry to their advantage by selling it and doing so earlier than they may be accustomed to or comfortable with. Leverage the relationship you have with your Grain Marketing Advisor at Landus Cooperative. These people work very hard every day to provide marketing advice and a variety of grain contracts to help you manage your risk. They can help you calculate break-evens and develop a sound marketing plan to guide you.