Does marketing your corn or soybeans drive you nuts? Does pulling the trigger cause you to break out? Like it or not, marketing and prudent risk management is as important as making a good crop. For farmers with little marketing discipline, a decision grid can help solidify their risk-management program, says Carl German, University of Delaware Extension grain marketing specialist. He helped lead a USDA Northeast Center of Risk Management Education program to devise a marketing decision aid several years ago.
A decision grid provides a picture of possible pricing choices. But remember, no product or person has the perfect crystal ball. It doesn’t guarantee which direction to take. But a decision aid encourages farmers to ask themselves which marketing moves they should make, depending on their financial situation and market outlook and trends.
“We try to help farmers learn all they can about their marketing alternatives and how to use them,” says German, noting that even though his small state isn’t a major corn producer, some irrigated growers saw 200-bu. yields this fall.
“The dilemma with grain marketing is that there isn’t any one thing a farmer can do year in and year out and expect that to be the best thing he could have done. A lot of alternatives won’t work with different basis levels and price trends.
“That’s why a grid can help people decide ‘what should I be thinking concerning the current situation?’”
Decision grids list various options for you to consider in particular price situations, says German. He helped develop a four-corner grid (see graphic above), which examines the marketing moves that should be considered.
If futures prices are up and basis is strong, one grid suggestion is to set a basis contract and a minimum price contract. For example, if your average corn basis is 40¢ under and it narrows to 15¢ under at the same time futures are at $7.50, that strategy would provide a minimum price of $7.35.
“Or, a ‘courage call’ may also be in the strategy,” German says. “Since at-the-money calls are generally more expensive, courage calls are more likely to be out of the money. Courage calls should be used with discretion, since one is making a sale because either the price represents a profit and/or a price decline is expected.”
He says that if futures are up and the basis is weak, growers should consider using a HTA contract and set the basis later. For example, if your average soybean basis is 20¢ under but it widens to 60¢ under at the same time futures are at $16.40, the HTA would lock in the $16.40, and basis can be set when it narrows.
But with today’s price volatility and the many marketing alternatives on the table, German says grid suggestions are not cast in stone.
Remember, these are not recommendations, only potential strategies.
Volatile markets dictate the use of several marketing strategies to help spread your risk, says Jim Banachowski, The Andersons’ eastern regional manager and longtime grain merchandiser.
“Crop marketing is a year-round process,” adds Charlie Pearson, economist with Agriculture and Rural Development, Alberta, Canada, who helped develop a grain-marketing grid for Canadian wheat and canola.
German says, “There is no one right answer to ‘how do I price my crop?’ The decision aid is designed to assist grain marketers in sorting out the marketing alternatives appropriate for given market conditions.”