You want to market corn or soybeans when they reach their highest possible price. But selling in the top third of the market should be a reasonable goal.
Even that can be difficult. But your local grain handler might have a plan to help you sell most of your corn at prices closer to $2.50 than $2 or lower.
Nearly 80% of customers using Ben Brandvik's recommendations sell in that upper third — the top of the market. “I do my best to keep marketing as simple as possible,” says Brandvik, former marketing manager at Perryton Equity Exchange (www.perrytonequity.com), Perryton, TX. Perryton Equity operates 23 country elevators in southwestern Kansas and the Texas and Oklahoma panhandles.
Brandvik, now general manager of AGP's elevators near Bovina, TX, mostly likes forward contracts. He recommends that growers start selling at levels that best suit their banks' requirements or to meet and exceed input costs.
Grain handling companies ranging from the multinational giants to country elevators offer a myriad of marketing programs aimed at helping producers tap the higher markets.
“Our goal in constructing market programs is to reduce the stress and frustration associated with marketing while remaining ‘customizable’ and easy to use,” says Jeff Seeley, vice president of risk management for Minneapolis-headquartered Cargill. Cargill AgHorizons lists more than 20 different marketing programs on its Web site (www.cargillaghorizons.com).
“Many of our products have the average market price as a central feature,” says Seeley. “These tools are ‘mechanical’ or ‘automated’ in the sense that no decisions are required. Everything is dictated by the performance of the market and the formula selected in the contract. This removes emotion and other psychological factors that can lead to marketing mistakes.”
Kevin Pshigoda, who farms near Perryton and Beaver, OK, is in his mid-20s and wants all the marketing advice he can get. Along with his parents, Duane and Karen, he raises soybeans, grain sorghum, wheat and occasionally corn.
While at Perryton Equity, Brandvik worked with Pshigoda. The young grower's forward contracts for sorghum were based on corn futures prices, Brandvik says, noting that Pshigoda has shown sound discipline in his marketing programs.
“Kevin was like other growers who saw a $2.50/bu. corn price (about $5/cwt. for sorghum) as a place to start making sales,” he says, adding that the local corn basis is usually 5-10¢ over December, but has been above those levels this year. “We forward contracted about 10% of the crop at $2.50 delivered, then another 10% at $2.60 and 20% at $2.70.” Those sales were in May and June before the mid-summer price plunge. Additional sales were made in the $2.55-$2.65 range.
Soybeans in the region have a poor basis, sometimes 75¢ below November futures. Still, some of the Pshigoda bean crop was contracted with Perryton Equity at $5.15 and $4.95 delivered.
Brandvik's normal plan involves working with growers to meet their bank note or cash flow requirements. “If a grower needs $2.50 corn to satisfy a loan, I try to get him to start selling at that price. The grower leaves offers to sell at that price, and to sell additional percentages at $2.60 or $2.70. He lets us do the work for him. The company, in turn, takes hedge positions to balance the pricing.”
Minimum price contracts allow a grower to deliver a specific quality and quantity of a grain for future delivery at a guaranteed minimum price. In exchange for payment of a premium from the contract price, a grower can select a futures strike price and contract month. The contract price deadline is the same as the expiration date for a corresponding futures option. The grower may re-price the guaranteed minimum price at any time prior to the expiration of that contract.
The pricing programs offered by Cargill AgHorizons, for example, include minimum price and other tools that provide various marketing alternatives for a fee of 5-10¢/bu. Seeley says growers using a program have access to any number of marketing tools. In one of Cargill's newest programs, Pacer Floored (formerly Floored Average), growers are able to lock in floor prices with acceptable minimums and take advantage of higher average price participation on the upside.
“A number of our corn customers assured themselves of $2.40/bu. or higher by locking in last spring, before prices began drifting down to the $2.15 range of early August,” Seeley says. “Others took advantage of Floor Plus — for a small service fee they received an additional 15-20¢ premium on their floor price. In these cases we have seen prices as high as $2.60 and $2.65.”
In two other Cargill AgHorizons programs, Pacer and Pacer Plus, growers have other price averaging benefits. For example, if corn prices reach $2.70/bu. one morning but drop to $2.60 by day's end, the $2.60 level will be used as the averaging point for that day under the Pacer contract. But the $2.70 level will be used under Pacer Plus. “With the market high used as the averaging point for every day of the averaging period, choosing the Pacer Plus contract provides a higher final price,” says Seeley.
Joel Eckelman is senior marketing manager for Scoular Company (www.scoular.com), Overland Park, KS, which has a large network of Midwestern and High Plains country elevators. He believes growers should be as serious about marketing as grain handlers.
“We take a lot of steps to eliminate price risks and to avoid speculation at all costs,” he says. “We feel a producer should approach his marketing in a similar manner.”
Scoular offers minimum price contracts and other programs based off cash contract positions. “Our growers used $2.45/bu. corn as a starting point in a lot of areas,” says Eckelman, noting that corn growers tend to be the most aggressive marketers because of higher input costs. “In areas that faced a short crop in 2002, some growers were more reluctant to forward contract larger numbers of bushels. But in Iowa and Illinois, where growers had good crops, they were more eager to market early.”
Brandvik says hitting the top third of the market can be accomplished virtually any year if growers take the steps to market when conditions dictate contracting in one form or another.
“There are nearly always times in which growers can market a lot of their corn at $2.50 or above,” he says. “I believe about 80% of the growers who take steps to market on a scale-up program will sell in the upper third of the market. That compares to about 10% of overall growers who sell in the top of the market.”
Growers should explore the marketing opportunities offered by their grain handlers or terminals. Some may find multi-year marketing programs. Hedge-to-arrive programs, used properly, can offer sound returns. Further questions about marketing through grain handlers can likely be answer via regional cooperative extension economists.