Farmers who have plans in place It's All In The Family When Brad Aust needs marketing advice, he calls an expert - his brother Brian.
Brad manages the 2,500-acre operation, including 1,700 acres of soybeans, near Bucyrus, KS. Brian is a merchandiser with The Scoular Company in Overland Park, KS.
For the past two years, Brian has recommended a program called Grain Price Protection Service (GPPS), which is offered by his employer.
Through this program, Brad receives on-call marketing advice and all brokerage fees covered for a charge of 5/bu. "If we use options, we still have to pay the premium," Brad adds. "For example, if a November put is used, they deduct the cost of the put off what they write the check for (after the grain is delivered)."
He likes the program in part because it frees him up to focus more on running the operation.
"They will call and let you know what's going on," Brad adds. "We find it especially valuable when we don't have time to watch the market."
He works with Brian to figure out a breakeven and find a targeted goal. Next, he uses a conservative yield to determine how much of his crop he feels comfortable marketing before harvest.
Because his brother is familiar with the farming operation, Brad says Brian may have an advantage in creating a marketing program for the operation. Still, he believes other farmers can benefit from this type of program even without the blood connection.
"Other farmers in the area have also used this program and feel it's a great way to help them market their crop as well," he says.
Balance Works The Best Don and Adam Christensen work as a team when it comes to marketing. Don is more conservative; Adam is more aggressive. The result is a balanced plan for selling their crops.
The Christensens like to use options to maintain flexibility in marketing on their 1,120-acre operation near Belmont, WI. This allows them to lock in profitable prices yet maintain upside potential, explains Don. They also look to spread out their risk in grain farming by taking other actions not associated with hedging.
For one, they grow for two local seed companies and capture a built-in price premium. However, they don't stop there.
"Typically these contracts with seed companies call for us to sell the crop to them in a certain time frame," Don says. "We'll comply with that, but if we don't like the price at the time we sell, we may use the premium we get for the seed to buy a call option to continue to hold the crop on paper."
They also have feeder cattle, so some of their crop is directed toward supplying feed. In the future, this may become a primary part of their operation, they say.
"We're not the best marketers yet, but we're doing better," stresses Adam.
The Christensens use consultants to help them in their marketing plans, but they continue to do their own research as well. If nothing else, it helps them intelligently question advice offered by the consultants so they feel comfortable acting on advice.
"I try to read every report I can and gather advice from many sources," says Adam. "During the winter we sit down and try to determine where we can do things better."
Advice Aids The Bottom Line "We realize we're not the best marketers in the world; that's why we turn to someone who stays on top of the market for advice," Lyle Meschke says.
Meschke doesn't rely on his 400 acres near Owatonna, MN, to keep him financially secure. But "the farm still needs to pay for itself."
Over the past three years, he's worked with Darren Fritz, manager at the Interstate Mills elevator in Owatonna. "My main objective with Lyle, and other customers, is to look at their cost of production and come up with a strategy to lock in a profit," says Fritz. "I think in the next three to four years the banker will demand this (type of strategy for all farmers) before approving loans."
Today, Meschke sells his crop ahead of harvest whenever prices reach a level where he knows he can make a profit. He currently has some corn sold out through March 2002.
"The last time I took a more speculative position on soybeans, I was at a conference and listened to some farmers (who had many more acres than me)," he explains. In the end, Meschke held his beans as prices continued to decline, in spite of predictions offered by the other farmers.
"We have to sell a certain amount when it's profitable and gamble with less and less," he concludes.