Crop marketing: Think, observe, decide, and do

Crop marketing: Think, observe, decide, and do

Minimizing losses sometimes most important goal

Many times over the years I have heard someone say, “I can’t sell my soybeans at this price, I’m not making any money.” And then they sell the same soybeans two months later for a dollar and one half per bushel less?

It is difficult for any of us to sell any product at a loss. But anyone who has been farming for more than two years has likely learned that sometimes the best marketing plan is not how much money we can make, but how little we can lose.

Unfortunately it is the nature of the beast.

Goals and Objectives

While the primary goal for most producers is maximizing profits, minimizing losses is sometimes even more important. This is a make-or-break year for many producers, which adds additional emotional pressure to market decision-making.

Richard Brock
Richard Brock

But since the beginning of April, corn prices have increased nearly 70 cents and soybeans have increased over $1.50 per bushel, a rally that was fully unexpected by many producers in March.

But in almost all cases, sharp and unexpected price rallies in commodities are followed by sharp price declines. So at some point, the rally does no one any good if something isn’t sold into it. So how is one to make a decision?

The process is relatively simple: Think, observe, decide and do.

Everybody can think. Maybe not clearly at all times, but the process is under way. We can all observe that the markets have rallied sharply since the first of April. But deciding and doing require a little additional input.

In this case, part of the decision-making process depends upon where your breakeven price is and how large of a crop you think you’re going to have. It also should include what the fundamentals indicate the expected average price of corn should be.

For example, we believe cash corn prices will average in the high $3.00 range basis central Illinois. Since the market is well above that now, and if your goal is to sell above the average price of the year, this is a good place to start looking.

The same is true for soybeans. With November futures trading near $10.70, that is at least 70 cents per bushel higher than what we anticipate the market will average.

Now the “doing” portion. That involves three steps:

1. What to do?

2. How much to do?

3. How to do it?

The most important steps are 2 and 3 — not 1. With a sharp rally in late spring and early summer, the what to do, in my opinion, is fairly simple — sell something.

Then comes the question of how much to do.

It would be highly unlikely that anyone would go broke selling 20 percent of their crop at one time. Sell 20 percent at a profitable level and hope you are wrong so that you can sell the remaining 80 percent at a higher price.

The “how to do it” portion has everything to do with using either a cash contract, futures or options strategies. In a bull market, my opinion is that it is likely best to scale in with cash sales and contracts. Start in small increments and scale up.

In other words, if November soybeans are at $10.70, sell 10 percent; 30 cents higher sell 20 percent; 30 cents above that sell 30 percent. If you use that method, your average selling price increases as the market goes up. Once you hit the 60 percent sold mark, take a deep breath and see what the fundamentals are at that point in time.

Richard Brock is the founder and president of Brock Associates. Email him at [email protected].

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish