Grain Marketing Methods: A Guide from ADM
In the past, farmers had fewer choices. Now, there are dozens of grain marketing methods to work toward more profitable prices for your crops. Here, we’ve defined each category and their pros and cons.
Every farm and producer is unique. Combine the methods you’re comfortable with into a customized plan. Manage your risk by starting early in the crop year, spreading out sales, and staying diversified.
What’s a Forward Contract?
You make an agreement prior to harvest to sell a portion of your crop. Most tools in this guide can be used to forward sell earlier in the crop year, when often, markets are historically higher.
You deliver grain for the spot price, sometimes called selling over the scale.
Pros: When markets go up, you can respond quickly and deliver more grain for immediate cash.
Cons: You’re at the mercy of cash and basis markets. There’s no upside opportunity if prices go higher.
Tips: Don’t over-rely on spot sales. Capture better opportunities early in the crop year, and think about cash sales last, when you need to empty bins. Also, consider adding an upside feature to preserve market opportunity (see HTA contracts).
Cash, Deferred, and Hedge-to-Arrive (HTA) Contracts
You commit to a sale, but try to do better than the spot price by locking in the cash level, the futures level, or establishing both at a later date.
Pros: HTA and deferred contracts let you leverage the futures market. These contracts are the most traditional ways to work for your target price.
Cons: You make all pricing decisions on your own, and have minimal control of upside and downside risk in case markets change.
Tips: If you’re new to forward selling, these contracts are a good place to start, especially if you have a market opinion.
Basis is the spread between the local cash price and the nearby futures price, reflecting local supply and demand. When you settle a grain contract, you receive the futures reference price plus or minus the basis.
In this method, you lock in the basis portion of the contract, but leave the futures portion open to capture a potential market rally.
Pros: You can compare local basis offers and get a partial cash advance to pay bills—without surrendering market potential.
Cons: You’re betting futures will go up. This may not happen. Basis contracts also require a good grasp of market fundamentals.
Tips: Understand basis and futures, and how they combine for a final price. Discuss with your ADM representative the circumstances when this contract is preferable to futures.
You can put in an offer to sell bushels at a price you specify.
Pros: This is one of the simplest ways to diversify and protect your price target. A firm offer triggers automatically so you don’t have to watch the market.
Cons: A firm offer requires the market to hit an exact price, so you can miss out on near-price opportunities. It’s also tempting to move your offer level when markets rise.
Tips: Don’t pull or move your offer when markets go up. Grab the sale and “ladder” another offer at a higher price.
Marketing Services (a Broker)
You use a broker to buy and sell futures and options representing portions of your grain.
Pros: There is no physical commitment of grain—just paper transactions that accumulate your gains and losses. Your broker may provide professional marketing advice along with trading services.
Cons: You must maintain a brokerage account. A second transaction—selling your physical grain—is required to offset any hedge positions you may have with a broker.
Tips: Understand the process and actively participate. Know the status of your position through frequent communication with your broker.
Find a qualified broker at ADM Investor Services.
Special Marketing Opportunities
ADM grain contracts—and features that can be added to traditional contracts—are designed to capture more specific price opportunities. They give you control and simple execution.
Pros: Sophisticated research and methods are built into these tools, without the work or stress for you. They require no brokerage account, but give you market participation. With most, you can add floor prices and upside, and set basis.
Cons: You make a firm commitment to deliver grain to an approved ADM delivery location. Some include service fees.
Tips: Stay alert to enrollment deadlines. Use their performance reports as a benchmark to guide your other sales. These tools work best when used consistently as part of a diversified plan.
Here are some examples of ADM’s special marketing opportunities:
Average Seasonal Price (ASP™): Captures typically better market windows
ADM AdvantageSM Expert: Puts a seasoned grain marketer in charge of pricing decisions on your enrolled grain
Some of these contracts execute automatically, some you actively manage, and one uses professional traders. You can diversify your marketing just by using several of these tools.
See the complete list of ADM contracts at ADMAdvantage.com/grain-marketing.
How to Keep a Level Head
No matter what methods you use to market, put a plan in writing early in the crop year and resist impulsive decisions. It’s tempting to move goal posts, procrastinate, or otherwise go off-plan. Here’s how to keep your emotions in check and your discipline in charge.
- Maintain crop insurance.Use revenue protection crop insurance as security to step out and make profitable pre-harvest sales. ADM is proud of an exclusive relationship and encourages farmers work with agents of Crop Risk Services.
- Set price targets. Do some homework and aim for a profit margin—fixed and variable costs + a profit margin. (We recommend using the legacy GrainBridge platform until a better one, STRATUM, launches in early 2020.)
- Know what you’re getting into. Understand the marketing instrument completely, including its risks and benefits.
- Stay diversified. Spread your sales over the calendar and a variety of tools, with each sale meaningful to your bottom line.
- Protect both upside and downside risk. Add features that capitalize on higher markets, but also secure a minimum price.
- Track progress. Use a platform like legacy GrainBridge to track profitability and sell additional bushels at the right times.
- Remember the silver lining. If markets go up after a sale, don’t regret it! Make another sale at a higher price to offset lower deals.
- Have a trusted guide. Ask your local ADM representative to help develop your marketing plan, and to keep you on track.
At ADM, we care that you understand market fundamentals and are familiar with the tools at your disposal. We’re happy to walk you through your choices and help with a plan to capture your price targets. Contact us to get started.
Past performance is not indicative of future results.
ADM is providing this communication for informational purposes, and it is not a solicitation or offer to purchase or sell commodities. The recommendations in this communication do not take into account any particular individual’s or company’s objectives or needs, which should be considered before engaging in any commodity transactions based on these recommendations. The sources for the information and recommendations in this communication are believed to be reliable, but ADM does not warrant or guarantee the accuracy of the information or recommendations. ADM or its affiliates may hold or take positions for their own accounts that are different from the positions recommended in this communication. The information and recommendations in this communication are subject to change without notice.