The old farmer came up after a late January seminar in Northwestern Iowa and pinned me down with some really good questions. Then as he pulled out an old three-ring binder he asked, “Do you want to see my marketing plan?” Of course I did — and this was a day that the seminar instructor learned a lot from the student.
In an era of cell phones, instant quotes and overnight trading, he took a long-term, straightforward, easy-to-use plan and made it work.
The farmer indicated that he only sold 10 months out of the marketing year. He didn't sell any in the month of February because he was usually in Texas, and he didn't sell any in October — he was usually too busy with harvest.
In the other months he always made a cash or new crop sale. He also knew that February and October were two of the worst months of the year to sell, “So why even try?”
His records showed that most years he had about 60,000 bu. of corn, and usually 20,000 bu. of soybeans to sell. With great yields last year, he was working with 72,000 bu. of corn and just over 22,000 bu. of soybeans from the 2004 crop.
Starting in January and then resuming in March he would always sell a minimum of 3,000 bu. of corn and 1,000 bu. of soybeans each month. Once the first sale was made he would put another offer for another sale up 9¢ on corn, and 27¢ on soybeans.
Using this plan, he usually got sold out of the last of his cash corn and soybeans between March and June. By July 10 he always swept the bin.
For new crop he would sell ahead. If he could get 30¢ over the corn loan and 50¢ over the soybean loan he would do the same on new crop sales. He would make scale-up sales, placing offers and using hedges into November soybeans and March new crop corn.
The results were great in 2004 as he scaled up old crop sales and had almost 40% of his new crop sold prior to harvest. None of the corn sales were less than 3,000 bu. or more than 10,000 bu.
For soybeans, the minimum sale was 1,000 bu. and as prices went higher he made 3,000-bu. sales, and he even made one 5,000-bu. sale. As he said, “I started a little early, but came in with a good average.”
The old three-ring binder showed 18 corn sales with an average cash price of $2.58/bu. on the 2003 crop sold at harvest in 2003 and through the spring of 2004. His average basis was about 30¢, so his average futures price was about $2.88. His year-to-date average sales price for the 2004 crop is at $2.68 with about 60% of the crop sold.
For soybeans, his average on 15 sales of the 2003 crop sold in the fall of 2003 and into the spring and summer of 2004 was $7.20 cash. This is about an $7.50 average futures price. For the crop harvested last fall he was 50% sold at an average of $6.40 local cash price.
Driving home, I thought about his plan and why it was so successful. I came up with four reasons why it works so well.
He took a long-term perspective. When he made a sale he didn't worry if prices went up — he just kept selling.
He placed orders. He called in the offers so he hit his targets when the market was moving higher. Having these offers in allowed him to make sales on some of the sharply higher openings that occur during weather markets.
He had a plan and his offers written down in his book. He could always tell you how many bushels he had: what was sold and how many bushels he still had to price. He knew his average LDP to the penny.
He always planned on a good crop and insured against a bad one.
This older farmer with no formal education was successful. He enjoyed charting the farm markets and was a self-taught meteorologist. His final comment was, “After two bin-busting crops, I'm more worried about production than prices next year.” I may be calling my old student to see what he thinks when he gets back from Texas.
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.