"My brother sold about half of our soybeans at less than $7/bu. I'm going to take over now," said the frustrated 40-something farmer at a recent seminar in southern Minnesota.
He was focused on how to buy back the bushels that had been sold. I, on the other hand, tried to get the group to work on realistic marketing plans to price remaining cash inventory and get new-crop hedges in place.
The soybean rally that has taken prices to the highest level since 1988 has been a mixed blessing for farmers. Quite a few Monday-morning quarterbacks are telling other family members what they should have done.
Here are some ways farm families can make better marketing decisions:
Diversify how you sell your crop. If your marketing plan is to sell when you need the money -- or the crop starts to smell -- your odds for success are limited.
A lot of marketing tools are available through most elevators. I suggest using a managed grain product on 30-40% of your crop, follow your market adviser on another 30-40%, and use your own instincts to price the last portion of your crop.
By diversifying how you sell your crop, you will not have the whole crop on hand to sell at $9 or $10/bu. But you will also avoid having it all in the bin when prices bomb.
Diversify who sells your crop. Marketing is stressful. The farm team member making marketing decisions often worries not only about the markets, but also about the criticism he or she will receive when prices get really cheap or really high.
I have seen successful farm families split up the job; one person markets corn and another sells soybeans. The stress is reduced and everyone realizes how difficult it is to make real-time decisions.
I work with a lot of women who are excellent managers and marketers. Often, decisions are made with less emotion and the net results are great.
Use all market alternatives available. As soybean prices soar higher, some producers are frustrated -- not with the profit level they sold at, but with the feeling that they are being left in the dust. By giving up ownership on all cash soybeans, they can't participate in a futures rally that may develop.
If you like the basis and want to move out your cash soybeans, a basis contract is a great marketing tool. You have the benefit of riding futures higher, and the risk of futures moving lower.
Many elevators offer a minimum-price contract. Programs differ at each elevator, but basic minimum-price contracts allow you to sell cash soybeans. The elevator then buys back a call option and the cost of the call option plus commission is deducted from your check.
If the call option increases in value, you can add to your selling price. If prices collapse, the option may become worthless -- but you will have made a good cash sale. The key is to choose the alternative that is right for you.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.
What is our current marketing advice for soybean growers?
The monthly CBOT soybean chart shows nearby soybean futures rallying to the highest level since July of 1988, with nearby futures taking out the $9.03 high posted in May of 1997.
The next goal is to hit the Elliott Wave price target at $9.98, then the $10.20 high in July of 1988 and the 1988 high at $10.99. Firm cash sales are at 80%, with most producers out of the cash market and holding July or August call options.
Stay disciplined and continue to make incremental scale-up sales.