7 Tips for Marketing Commodity Grains
Maximize your farming operation’s profitability by brushing up on your commodity grain marketing skills with these seven tips.
Contributor: Kirk Berry, farmer from Brooklyn, IA
The bins have been filled, equipment tucked away in the machine shed, and that familiar icy wind has set in. It’s winter here in the Upper Midwest, which also means row crop farmers have begun to twiddle their thumbs. What better time to brush up on those marketing skills? The AgSolver team has put together a list of their top commodity grain marketing tips, so pull up a chair and sign in to your Profit Zone Manager account to see how sharpening your marketing skills can increase your operation’s profitability!
#1. Control Emotions
The markets, whether we’re talking the stock market or the commodity grain market, are turbulent and require a steady mind. Avoid letting past decisions get to you and affect future decisions. For example, if you make a grain sale at $3.50 and it goes to $3.60 the next day, you have to live with it and move on. Focus on the next crop and be happy that the market went up rather than get upset because you didn’t sell at the higher price.
#2. Capitalize on Forward Contracts
Forward contracts are a tool that isn’t used enough, and can play a huge role in profitability. A forward contract is when a farmer agrees to sell grain before it has even been harvested. If it is spring and the corn market is at $4 for next October, you can forward contract as many bushels as you want for $4. Forward contracting is valuable if you think the price is good and won’t go higher when harvest comes around. It’s a great tool for locking in profit because generally speaking, prices during harvest are lower. However, be cautious to not forward contract too much in case of an unforeseen event such as a drought that can severely diminish your crop. Most farmers don’t forward contract over 50% of their predicted crop for this reason.
#3. Pay Attention to Seasonal Highs
For the most part, commodity grain markets follow similar trends throughout the four seasons. Generally speaking, the months of May, June, and July are typically when we see the highest prices of the year, and it will peak during one of those months. Take advantage of price rallies, but don’t try to outguess the market.
#4. Don’t Get Greedy
If you know that you can lock in a great price and make a decent profit, don’t get greedy and argue that the market will go up more. You never know if two weeks from now the price could drop $0.75 and never reach that high price again. This is how farmers can lose money quickly.
#5. Keep Storage Costs in Mind
Storing grain at local elevators is another cost that easily drags down profitability, especially if you’re storing over several months. Generate a plan that avoids this unnecessary cost as much as possible. Building your own bins is costly too, but if you already own some then you have a lot more freedom when devising a storage plan. One cost-avoiding method is forward contracting as much as you feel comfortable with and then selling the rest right out of the field to avoid bank interest and elevator storage costs. Another option is storing left over grain from forward contracting in bins if you already own them, and then waiting to sell your previous year’s crop until prices rise again in the spring or summer of the following year. A more risky option is to forward contract all your bin storage bushels a full year in advance and trying to hit next year’s seasonal high. Going this route means you can’t forward contract many bushels to the elevator or else you could accidentally over sell. This also means that you will either sell right when you haul your grain to town in the fall or pay storage each month at the elevator until you sell next summer.
#6. Take Advantage of Narrow Basis
There is a future market for each month that constantly changes based off of supply and demand. When you forward contract, you will sell your grain at the price of that future’s month. Every buyer (elevator, feed mill, ethanol plant, etc) has a basis that they operate on for each futures market. For example, if a buyer has a basis of $-0.44 cents for a certain month, that means that they are paying $0.44 less than the futures market. The basis narrows as it gets closer in time to the futures market. The more narrow basis a buyer has indicates the more grain the buyer wants. If something in the market happens and the buyer doesn’t want as much grain, the basis will widen which means they will offer a lower cash price.
#7. Stay Informed on Ag News and Crop Reports
News relating to agriculture can have a significant effect on market behavior. If a report comes out that 2017 will be a drought year, grain markets will react by increasing price to account for the shortage that will ensue from a drought. Likewise, if a prediction of ideal growing conditions in another competitor country comes out, the markets could react by going down. Whether your preferred news medium is Twitter or a TV, keep your thumb on the pulse of agriculture news so that you have a feel for what the markets could potentially do in the future.
