How do you measure your grain marketing performance? For example, if you receive an average price of $9/bu. for your 2010 soybeans, how do you know if you did a good job of pricing them?
Few farmers seriously address the question because they think it will be too difficult to answer. Allow me to suggest a relatively simple solution: Calculate a baseline price of your local market for comparison to your selling price.
For a baseline price on my mythical farms, I calculate an 18-month average price starting in January of a new crop year and ending in June the following year. For example, in January 2010 I started tracking a baseline price for the soybean crop produced this year. I will continue the process through June 2011. I end there because I obey the “11th Commandment of Grain Marketing:” Thou shall not hold unpriced corn or soybeans in the bin after July 1.
The baseline price represents the average price you could have received had you priced 1/18 of your crop each month. Make it a simple calculation. You don’t need to track prices every day. I use one quote per month (the second Friday). An accurate measure of a baseline price should also consider storage costs, but correcting for storage costs in the baseline price and in your selling price will complicate the process.
I say keep it simple and ignore storage costs in the calculation (but if you’re selling 2010 corn in 2012, understand that this simple comparison is not telling the whole story).
When you have completed the sales of your crop for that year, compare your weighted average selling price against the baseline price. Even the best marketer will not beat the baseline price every year. In fact, most grain producers are at a distinct disadvantage relative to the baseline price because storage limitations force many farmers to sell more grain at harvest, when prices are often lower.
Nevertheless, I think a good marketer should be able to beat the baseline price more than every other year. If you use a market advisor, the price they deliver to you should beat the baseline price more than every other year.
Every year you track yields on your farm because it’s a sound management practice – it’s good to know if you are making progress as a grain producer. Why not track a baseline price to assess your progress in marketing?
Here are three ways NOT to measure your performance.
Against your neighbor: To compare selling prices with nearby farmers makes for interesting talk at the coffee shop, but not much more. Besides, your neighbor may be exaggerating, just like your neighbor’s neighbor (er, that’s you).
Against the crop year high or low prices: Comparing your price to the poorest price in the market is setting the bar too low. Comparing your price to the highest price is depressing. Nobody sells all of his grain at the highest price in the market.
Against profitability: A profitable farm should be your ultimate goal, but it is not a good standard for assessing your pricing performance. It has been hard not to sell at a profitable price in recent years. However, from a marketing perspective, you may have done a better job in a year when prices were low and unprofitable, but your pricing decisions held your losses to a minimum.