Grain marketing can be more profitable if producers can sidestep the following six common problems, says Robert Anderson, farm management educator with the University of Minnesota Extension Service.
Those problems are:
1) Not selling when markets are going either up or down rapidly because producers feel they’re too emotional. Anderson says producers are most comfortable selling when markets are stable, which is common to markets with relatively low prices. However, you can remedy this problem by placing scale-up or scale-down sell orders with your grain buyers or commodity brokers.
2) Being more worried about the market going up than about it going down. Producers will buy call options after they sell so they don’t miss the high. Instead, Anderson suggests, focus on buying put options to manage downside risk on unpriced grain.
3) Not selling in a long-enough marketing window. Farmers tend to wait until after harvest and, in most cases, after Jan. 1 before they begin selling. They try to finish before the new harvest begins so they have room for the next crop. That, however, is only an eight-month marketing window.
You need to work at selling increments before planting, after planting, after harvest, and during the spring and summer storage season. Anderson says many times the best marketing opportunities are available before the crop is planted. Using a longer marketing window increases the chances of capturing good marketing opportunities.
4) Tending to sell when money is needed. Too much of the crop is sold during the February-March time period when markets are historically low and cash flow needs are large. Anderson says producers need to plan ahead by selling in advance of this late winter period to provide for cash flow needs.
5) Tending to sell before harvest to make room for the new crop. Generally, in years of good crop prospects, the basis is widening and seasonal lows come at this time of year. Produers need to provide for storage space before this time period.
6) Not making storage pay because they don’t sell the "carry" in the market. In times of low prices, markets tend to have a "carry," which means that price offerings for sales in the future are higher than at present. Producers with on-farm storage can capture these premiums by forward contracting their unharvested crop for the following spring or summer delivery.
"Grain marketing is a very challenging part of farming," Anderson says. "But having a good marketing plan and avoiding some of these pitfalls can help."