One day just before the opening, a veteran Chicago Board of Trade member made this comment as we walked onto the trading floor: "The only thing that I know on any given day is that the prices are going to move up and down."

The same can be said about the corn and soybean price outlook for the entire year. The only certainty as this article goes to press is that prices are going to be very volatile this year, with large swings up and down. Under the current Freedom to Farm policy, how well grain is marketed and when the loan deficiency payment (LDP) is locked in will make a huge difference in farm profits.

This article explains situations when hedging should be considered. If you are new to this, go slow. Study the market and use some of these ideas on part of your production. By studying how and when to hedge, it's possible to take a lot of the frustration out of marketing.

For grain producers, risk occurs if prices move lower. In most cases, you'll be looking to make cash grain sales or place short hedges (by selling futures contracts) to protect against lower prices. To increase your chances of success when making marketing decisions, here are four key factors to consider when timing your hedges or cash grain sales.

1) Price trends. Knowing the trend of the market is the first key factor in knowing when to hedge. An age-old saying states that the trend is your friend, and one difficult part of marketing is knowing when the trend changes.

The most important method to use when analyzing the market is keeping and reviewing weekly, updated continuation charts of corn and soybeans. A review of the weekly charts for both crops shows that we have just broken out of a long-term downtrend and odds are good that prices will trend higher into this spring and summer.

2) Your goals. Knowing your income goal is important in any business. The key idea here is to set up written marketing goals and objectives. I don't believe that the old rule, "Sell it at the cost of production" works in today's markets. The producer ends up selling too late in downtrending years and too early when prices are in a major uptrend. A more reasonable goal is to try to beat the yearly average price, or to achieve an average selling price that's in the top one-third of the yearly price range.

Another key goal to set is the number of dollars per acre you want to make on the corn and soybeans you grow. You can pick those figures using any method you choose. The key is that youput it in writing and make sure that everyone in your farm business agrees with the plan.

3) Profit. Locking in an acceptable profit is one of the main reasons to hedge. After the last two years of downtrending grain markets, I haven't put this at the top of the list, but that could change this year.

A retired farm manager I respected as an excellent farmer and merchandiser had a simple marketing plan for 60% of his crop: He priced 5% each month. If the basis was too wide, he'd place the hedge into deferred futures. On the remaining bushels, he made four 10% sales timed so that his profit or dollars-per-acre goal was achieved.

By looking at the bids out 12-18 months, he often had excellent sales made at good profit levels well before he planted the crop. With the combination of the twelve 5% sales and four 10% sales, he had a simple plan that was always able to beat the yearly average price. And he also had a very predictable budget and cash flow on his farms.

4) Seasonal odds. Knowing that corn and soybean prices have a definite seasonal pattern can help you hedge at the right time. Selling or hedging based on seasonal odds uses the theory that new-crop and cash sales made from mid-April to July will result in a higher average selling price than harvesttime sales. As you review Tables 1 and 2, you'll see that the theory has been correct in eight out of the last 10 years. (For a 40-year review of soybean price highs and lows, see the chart on page 62.)

If you're in a storage or cash flow position that prevents you from storing new crop, be willing to make three or four new-crop sales starting in mid-April and wrapping up by mid-July. Growers who are willing to make these incremental seasonal sales consistently make more profit than producers who hope that prices will be high at harvest.

These four suggestions outlining times to hedge will not only help you know when to hedge, but also will take much of the emotion out of your marketing decisions. By writing down your goals and then making old- and new-crop sales during spring and summer, you'll never sell the whole crop at the top. But odds are very good that you'll have an excellent average selling price.