Create a Plan for Unplanned Bushels
Harvest is a reason to celebrate and comes only once each year. But it also brings about renewed considerations that include how to maximize profitability to pave the way for yet another harvest.
For instance, how many bushels should be sold versus stored? How will prices react to replenished supplies and how does that relate to demand expectations?
ADM Crop Risk Specialist Jim Sibbel discusses how to create a plan for planned and unplanned harvest bushels.
“There are things we know, like how much storage we have, what cash flows we need, and what tax implications we’ll face. Use that knowledge as a starting point to develop a plan and then break down the bushels by each item.”
As an example, he says, consider on-farm storage. Unplanned bushels are likely to use more storage than is available, so break down the choices and alternatives. He asks, “Is there more than one commodity? If so, which should be moved first, and which do we store more?”
To help make a decision that’s best for you and your operation, Sibbel encourages producers to think about trucking logistics and finances.
“If we need to move some grain and the prices are good, then it may make sense to sell some off the combine. Or maybe it’s a cash flow or income goal question. Figure out how many bushels must be sold to cover those needs. Then you can look at remaining bushels and simplify marketing decisions after harvest by taking one piece out of the puzzle,” says Sibbel.
For those bushels that are not priced at harvest, determine how many “must-move” bushels remain, and what income to take. “With an understanding of financial needs, it’s easier to determine what contracts are the best fit,” Sibbel notes. “There are many different contracts available for harvest bushels. None of us know the future, so consider diversifying those contracts to spread the risk.”
Choose contracts based on how you personally define risk, opinion of market direction, and future income needs. “If you would like to take some cash this year but feel the market could move higher, there are multiple contracts to choose from,” he continues. “Share your goals, needs and market bias with your originator, so they can help find a contracting strategy that works for you.”
Preparation is key
Jennifer Potter, ADM Commercial Manager from Lincoln, Nebraska, says “a little preparation helps ensure a harvest without surprises.” This sets up producers to make faster decisions about grain delivery, especially when there are bumper yields. She recommends reviewing these items before the rush begins:
- Discounts (particularly moisture) – Know and understand the discounts at your local elevator or processor where you deliver grain. Some offer cents per bushel; others shrink the bushels; or, in the case of soybeans, the discount is usually a percent of the contract price. You also need to understand the shrink and drying expenses you would have if you decide to store on farm.
- Account Information and farm splits – Make sure the elevator or processor has your account information updated. Were there any address changes from last year? Check to ensure that your landlords are in their system too, with the correct split percentages.
- Harvest procedures – Understand how the elevator or processor handles contract applications, spots, and open-store or deferred-pricing contracts. Think about opportunities for the unpriced and unplanned bushels that you can’t store on your farm. Are there fees you may incur from open-storage or deferred-pricing contracts, and what is your plan to price those bushels going forward? The “deliver-and-forget” strategy is not a good one, according to Potter. Consider the grain marketing tools provided in ADM’s contract portfolio and leave offers with your representative to price the grain at your price targets.
- Defer-pay – Have an idea of how much income you need at harvest either from a cash flow or tax perspective. Let the elevator know ahead of time and find out how they handle defer-pay situations.
Take steps ahead of time to be organized and prepared for unplanned bushels at harvest. Talk with your ADM representative about grain marketing tools to find a good fit for your operation.
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