“Think, observe, decide and do” is a fairly standard decision-making model. Most of us are pretty good at thinking and observing (Steps 1 and 2), but fail in Steps 3 and 4 — making a decision and doing it.
Too many times we fall into the habit of making decisions based on what worked well last year and what didn’t. However, rarely does the same marketing strategy work two years in a row.
Three years ago, when corn was $7.50 per bushel and soybeans were $17, a popular belief was that commodity prices were sure to remain at permanently higher levels at a new, higher plateau. People believed that “this time is different,” that soybeans would never go under $15 and that corn would be never trade under $5 again. How many times in our lives have we heard the refrain, “this time is different”?
In hindsight, everyone now knows what they should have done in the last three years: sell ahead aggressively. In my opinion, however, that strategy is not going to work well over the next 12 months. Using the same marketing techniques now just because they worked well in the recent past, is likely to work as well as driving down the highway by looking through the rearview mirror.
The accompanying diagram might help us understand the decision-making process a little bit better. All too often, many people believe that having the right information (knowledge) is all that is needed for making good marketing decisions. That is far from the case. No matter how good the information is, what is most important is knowing what to do with that information, and how to make and execute a decision.
Here are a few thoughts that you might find helpful over the next few months:
1. The corn and soybean markets have both likely made bottoms that will hold into at least springtime.
2. Even though the lows may be in for corn prices, that doesn’t mean you should expect a major bull market. With approximately 1.6 billion bushels anticipated for this year’s carryover, it will take a minor miracle to muster a major bull move.
3. Soybeans are in pretty much the same boat. Large world carryover supplies will hamper any major price moves, even though the bottom has likely been confirmed.
4. This year’s most effective marketing strategies will likely be entirely different from what worked best this past year. While many of you prefer not to use futures and options, options strategies this coming year may be the best bet for increasing your average price. For example, as I write this, July 2016 corn futures are at $4.17, and July $4.50 calls are 22 cents. If you sell the call option “premium” for 22 cents and the market doesn’t go up, you have at least collected 22 cents per bushel to add to your average selling price. If the market does go up you, have locked in $4.72 for your corn (less the basis).
There will be many ways to enhance the average selling price of corn and soybeans over the next nine months. However, putting the crop in the bin and “hoping” that the market goes up is not one of them.
Also, be careful about selling too early in this kind of a market. Be sure to compare the full range of marketing strategies that are available to you to a realistic expected average price, and make your decisions accordingly. As is usually the case, understanding and implementing good merchandising techniques will have a good payoff well into 2016.