I held on too long in the cash market and didn't get near enough new crop sold ahead again this year,” said a disgusted Northern Illinois farmer before a seminar I spoke at in December.
In the seminar I outlined several ways for him to change his marketing plan in 2006-2007. With some additional thought and study, here are some simple suggestions for you to consider for next year.
Review your 2005 sales. Go through this simple exercise: Write down the date you sold last year, the number of bushels priced, price received and year-to-date average price. This will allow you to review the amounts you sold each time, when you sold the crop and most important, the year-to-date average price.
Add in any gains or losses from futures transactions and you'll know your net selling price.
Review what you could have done differently. I don't mean that you should be a Monday morning quarterback, but by honestly looking at the mistakes you made in 2005, you can avoid making those same mistakes in 2006. On a more positive note, also review the good decisions you made, why you made them, and think about how can you make better decisions in 2006.
Review your decision-making process. Are you selling when you need the money? Are you selling because you need to get the crop moved to make room for the next harvest or is it because it hit your profit target? Do you have a process? If not, one of the best investments you can make this month is to develop a pricing strategy and review the process you use in making marketing decisions. Large corporations spend a huge amount of time and energy setting up processes and procedures to try and make consistent profits. As independent farmers this may not appeal to you, but this exercise is time well spent.
Plan your sales in the cash market and for fall delivery now when the markets are flat, you aren't busy in the field and you have time to work through a plan and run it by your adviser and lender. Think in dollars per acre and realize that with the current farm policy, selling ahead at the right time and locking in the LDP at harvest lows creates a more profitable farm than if prices stay high.
Use seasonal price studies as a simple guide when to price your crop. Review the corn and soybean seasonal studies charts that are shown (below). You can see that avoiding sales in January and February has usually been the right move if you sell 10-20% of your old- and new-crop soybeans starting in March and get the sales completed by June. If you use this plan consistently, odds are high you'll like the results. Simple? Yes, but over a 20-year time period you will like the results 18 out of those 20 years.
Look way ahead, not only to the fall of 2006, but also to the prices available in 2007 and 2008, especially in the corn market. The corn market currently has a carrying charge all the way to December 2008. By pricing some (10-20%) December 2006 ahead at more than $2.50, some 2007 ahead at more than $2.60 and some 2008 ahead at more than $2.62 you're selling risk premium — plus a carrying charge — ahead two to three years. Again, look at the seasonal analysis charts and you will see that in five of the last 30 years, selling the crop ahead the year or years before you plant it has given you the best price.
Review who makes your pricing decisions. (I've saved the toughest one for last.) If over the last two or three years you've worked hard at marketing but just haven't been satisfied with the results, it may be time to change quarterbacks. You're still the owner and head coach. But by assigning the decisions to someone else in your operation, you may find them better suited to sell than you. Great production farmers are usually optimists and have the hardest time pulling the trigger.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.