In my experience both as a farm management consultant and as a corn and soybean producer, I have observed several mistakes producers often make when marketing their crop. Below, I have listed six common problems. In order to be successful marketers, producers need to avoid them.
- Producers won’t sell when markets are going up rapidly, because they are too emotional, and they won’t sell when markets are going down rapidly, again because they are too emotional. They are most comfortable selling when markets are stable, which is common to markets with relatively low prices. Producers can remedy this problem by placing scale-up or scale-down sell orders with their grain buyers or commodity brokers.
- Producers are more worried about the market going up than they are about it going down. They will buy call options after they sell so they don’t miss the high. They should instead focus on buying put options to manage downside risk on unpriced grain.
- Producers don’t sell in a long enough marketing window. They tend to wait until after harvest and, in most cases, after Jan. 1 before they begin selling, and try to finish before the new harvest begins so they have room for the next crop. This is only an eight-month marketing window. They need to work at selling increments before planting, after planting, after harvest, and during the spring and summer storage season. Many times the best marketing opportunities are available before the crop is planted. Using a longer marketing window will increase the chances of capturing good marketing opportunities.
- Producers tend to sell when they need money. Too much of the crop is sold during the February-March time period when markets are historically low and cash flow needs are large. Producers need to plan ahead by selling in advance of this late winter period to provide for cash flow needs.
- Producers tend to sell prior to harvest to make room for the new crop. Generally, in years of good crop prospects, the basis is widening and seasonal lows are being put in at this time of year. Producers need to provide for storage space in advance of this time period.
- Producers don’t make storage pay because they don’t sell the "carry" in the market. In times of low prices, markets tend to have a "carry," which means that price offerings for sales in the future are higher than for the present time. Producers with on-farm storage can capture these premiums by forward contracting their unharvested crop for the following spring or summer delivery.
Grain marketing is a very challenging part of farming. Having a good marketing plan and avoiding some of these pitfalls can help make grain marketing more profitable for growers, and produce more hits than strikeouts.