Your Reading List

Building a crop marketing strategy for your farm

Understanding Market Bulls and Bears: Use market information and your own numbers to build 
a marketing strategy that works

The more meetings you go to and the more speakers you listen to, the more market influencing factors you learn about which just continues to make “trying to figure the markets out” more confusing.

Learning and gathering information is critical to helping you be successful in marketing your crops, but don’t let it overwhelm you to the point that you lose your focus.

Know your numbers

I’ll say it again. “Know your numbers.”

Earlier in the year you were marketing grain based on assumptions of average yield and quality. Now that you know your yields and quality you can more accurately determine what price you need to cover your costs and make a profit.

If you market according to these numbers, you’re protecting yourself, locking in a profit and ensuring the continued success of your farm.

Using your numbers as your main marketing price targets will help you keep your focus on what price you need to be successful. When you are attending meetings and “trying to figure out the markets” you won’t lose your way through all of the information.

Gathering information is useful in helping you refine or change your marketing plan, but again your marketing price targets need to be based on your actual numbers to help you keep a focus on bottom line profitability for your farm.

I recently read an article about different marketing strategies U.S. corn producers have used over the years. A university did a comparison to see if any one strategy was a clear winner over the others. Here is what they found.

This comparison was based on the years 1989 to 2010, using the assumption that during the 21 years of the review, the producers stuck to their specific strategy each and every year and did not deviate from it.

The strategies compared were:

  • Selling 100 per cent at harvest;
  • Setting target prices based on production costs plus 10 per cent, and selling 25 per cent in each of four months (February, March, April and May);
  • Selling one-twelfth every month;
  • Selling based on seasonal price tendencies, selling grain on March 1, June 15, August 1 and August 15;
  • Selling 10 per cent each month beginning January 15 and ending October 15.

Over the long term there was no clear single winner, but there were those that were consistently better performers.

Lowest, by total returns per bushel, was the strategy of selling 100 per cent at harvest, which isn’t a big surprise. We know that both the futures and basis are, on average, at their poorest levels during the harvest period.

Next runner up was the strategy of selling one-twelfth of your crop every month, likely because they sold a portion of the crop through the harvest season.

Next was the strategy of selling 10 per cent 10 starting January 15 and continuing on until October 15. This strategy was a little better but again they were selling through the harvest period, which likely brought the average price down.

The second best strategy was to set a target price based on cost of production plus 10 per cent (profit) and then sell 25 per cent each month from February to May. This seemed to work well, but you’re only marketing over four months of the year, which restricts your ability to respond to seasonal market tendencies or unexpected market movements.

The strategy that brought the best average returns over the 21 years of the study was to sell based on seasonal price tendencies, and sell on March 1, June 15, August 1 and August 15, as those dates were historically high market days for U.S. corn futures. Selling based on seasonal tendencies doesn’t mean you are making a profit unless you know your numbers. If the market isn’t meeting your numbers, you can decide if you should sell or hold, depending on market signals.

The point is that no one marketing strategy is going to be the best each and every year. Build a strategy that works for you. Build one that includes your numbers as a base, and meets your cash flow needs and your risk tolerance levels.

By using your numbers as a solid foundation for your plan, you have the information you need to choose which pricing strategies to use to hit your price targets. If you follow these steps you will become a more disciplined marketer and make better marketing decisions for your farm.

I suspect that if you were to use a blend of the last two strategies by setting target prices based on your costs of production plus 10 per cent (or more or less, your choice), then market based on historical pricing tendencies and current market information, you would have a solid plan that should stand the test of time.

See you on the meeting circuit!

About the author

Columnist

Brian Wittal

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

Comments

explore

Stories from our other publications