Marketing is never a one-size-fits-all strategy. The options seem endless and the future of your farm depends on making the right call.
Profiled below are three farmers who range in number of acres farmed almost as much as they do in marketing approach. In a two-part series, we're profiling their efforts to gain perspectives on their different strategies. We will visit with them again in the spring to see what alterations they've made to their plans and why.
Tim Sullivan, Franklin, MN, farms more than 5,000 acres with his father, Mike, and brother, Pat, on a 50/50 corn-soybean rotation. They own about a third of their acres. Most of the rest is cash rent, but they also crop-share 600 acres and grow seed beans for Monsanto and AgriPro. They have 240,000 bu of corn storage and about 50,000 bu of bean storage.
Market Positioning: Tim and Mike collaborate on marketing decisions, using information gathered from their local elevator, the radio and market reports.
“We try to sell at a profit all the time and not worry so much about hitting the high,” Tim says. “We've typically been forward pricers. With our storage situation, we just can't hold all of our grain, and it forces us to market it ahead.
“We've occasionally used options. Most of the time we'd have been better off if we'd have never bought them,” he says. “We're better at forward pricing.”
Sullivan admits that his family has found marketing more challenging this year than in the past. But they look at the big picture and try not to get frozen by bad decisions.
“We have an overall strategy, but the plan changes daily. There's always a time when you think you should get some sold and there are times we've been wrong. This year, we've probably been a little wrong,” Sullivan notes. “This hasn't been our best year, but we've done well enough in the last three years to absorb this bad one. Hopefully, we'll do better in 2002.”
The Sullivans are long in corn and have forward priced about 200,000 bu of corn at $1.85 after getting out of 400,000 bu of their spring contracts in July. They haven't forward priced any beans, since they've been below loan rate.
Strategy, Predictions And Outlook: “Our plan is to take the LDP and see if we get a little recovery here after fall,” Sullivan says. “We've got a lot more time to haul corn in January than we do in June or July. I hope the market is going to go up, but I don't know that I'd bet real hard either way.”
The Sullivans admit that marketing the 2002 crop is always in the back of their minds, but as yet they haven't made any decisions. They usually market their grain within a 12 month time-frame.
Dennis Stephen, Williamsport, IN, farms 12,000 acres with his three sons, Travis, Mark and Aaron. The family owns 4,700 acres, operates 2,500 acres on a 50/50 farm-share basis and cash rent acres on the balance of their operation. The Stephens' plant a 60/40 ratio of corn to soybeans and can store more than 700,000 bu.
Market Positioning: Dennis makes all of his own marketing decisions, but gathers information and asks advice from other business owners. In fact, he holds a quarterly meeting with bankers and brokers to solidify his plan. His strategy is simple: Take a profit when you can get one, watch your basis and sell when there's carry in the market.
“Anytime I can hedge above the loan rate, I hedge. I don't care how far out,” Stephen says. “Anytime I can show a profit, I've got to start hedging and sell. I can't get greedy and gamble.”
Stephen has hedged about half of his beans for $5.61/bu. He made cash sales at $2.80 and $2.90 on 160,000 bu of food-grade corn for delivery to Illinois Cereal in January, March, April, June and July.
He's also hedged corn at $2.50, $2.60 and $2.70. A good portion of that is for next July.
“What I'm looking at is picking up carry using my farm storage. I try to keep my marketing simple. I'm not trying to hit the home run,” Stephen says. “I'm stealing bases.”
Strategy, Predictions And Outlook: “My strategy is to use my hedges and take my grain to market. The beans that I don't have hedged, I'm thinking about hedging in March right now,” Stephen says. “There's quite a bit of carry November to March. I'll take my LDP now and deliver my beans in January and February.”
Stephen believes the markets will go down. In late September, he was waiting for crop estimates to be increased, which would place a downward pressure on the market.
“I think there's more crop out there than what they think there is,” he says, “because in our area, they're going to run out of storage.”
Using a long-term approach, Stephen has marketed corn in all three December contract years available on the board at one time.
“People say, ‘Well, how do you know you're going to be farming then?’ My thought is that if you're not thinking about farming that far out, you better have a farm sale,” Stephen says. “I've talked to a lot of people who are in business. They don't operate like a farmer does. That's taught me to go out and hedge and protect myself.”
Chris Karr, Seymour, IL, farms 1,400 acres on a 50/50 corn-soybean rotation. He owns 190 acres. The rest is share-cropped 50/50 or cash-rented. In addition, Karr does some custom work and has about 35,000 bu of storage. However, he considers the 15-acre tracts he rents and farms for Pioneer Hi-bred International his diversification plan.
“I'm renting soybean plots to Pioneer to do yield spot checks and that helps diversify my income,” Karr says. “On one side of the equation it diversifies me. On the other side of the equation it causes me to slow down, back up, spray around the plots — do those kinds of things that they require.”
Market Positioning: Karr says his strategy is based strictly on forward pricing his grain. He's tried using options before but isn't comfortable with them, so he steers clear.
“I have tried the options strategy and because I wasn't willing to discipline myself, I didn't feel that was the way to go,” Karr says. “I had a bad experience. So in 27 of the last 30 crops that I have taken out, I've forward priced grain, both corn and beans.”
Karr tries to forward price about 60% of his expected crop in an average year. If his 150-bu/acre yield estimate holds true for his corn, he's done that. But with prices below loan rate, he's only priced about 10% of his beans before harvest. Karr believes in marketing in small increments and markets 5,000-10,000 bu at a time.
Crop insurance is an important part of his strategy. Karr finds that with ground spread over 12 miles and soil that varies radically, it gives him the security to forward price.
“I go ahead and pay a little extra premium so that each field will stand on its own. To me that's part of my marketing plan. If I didn't have multi-peril insurance, I don't think I would stick my neck out and forward price that much of it,” Karr says.
Strategy, Predictions And Outlook: Karr has corn priced at $2.25, $2.29, $2.34 and $2.44 for either fall or January delivery. He's forward priced 10% of his bean crop at $5.
“What we're going to do with the rest of it, that's a big guess. The old school is when you have bills to pay, you go market some grain. That's not a very good marketing strategy, but a small percentage of grain that I sell still falls into that kind of a bracket,” Karr says. “I've got to have money coming in. It's cash-flow strategy. I have to have dollars on Dec. 1 and March 1 for cash rent and most of my loans come due on Jan. or Feb. 1.
“I think corn and soybean prices are going to go up. I just don't think the crop's out there,” Karr says. “I'm going to hold my grain for another two months and look for an opportunity to price it for January or March. I don't expect to hold much grain past March or April of 2002.”
Karr normally starts pricing some of his next crop between Oct. 15 and Nov. 15. In late September, he had not priced any 2002 crop, but was keeping an eye on the markets.
“The reason I have not contracted any grain for 2002 yet is because I believe that it's going to go up and I'll have a better opportunity,” Karr says.
As part of his financial strategy, he's prepaying as many inputs as he can. By the end of September he'd already paid for anhydrous and seed corn. He'll have fertilizer and lime paid for by year's end.