How to Evaluate Your 2018 Grain Marketing
With harvest underway, hopefully your 2018 grain marketing plan is still in place, guiding you on whether to sell or store the extra bushels in this large harvest. Successful businesses continually review their wins and losses so they can move forward with a better plan.
We take up the challenge of evaluating your grain marketing honestly in Episode 5 of our In the Driver’s Seat podcast, wrapping up a five-part series on grain marketing. Joining us are two ADM representatives with experience helping operations of all sizes with their risk management:
Miranda Wamsley, Origination Manager in East Central Illinois; and Jason Depenbrock, Origination Manager in Northern Illinois.
Here are the highlights from the podcast.
In general, do you think farmers evaluate themselves honestly?
Depenbrock: Farmers are pretty hard on themselves. There’s a real emotional connection to the grain they own, so it’s hard to market it—and it’s hard on them to fail, in their eyes, if they don’t think they’ve done the right thing.
Wamsley: A lot of farmers compare themselves to the high of the market, so they’re basing themselves off of an unrealistic expectation to begin with.
Is there a better approach? How can farmers be realistic, yet not beat themselves up?
Wamsley: Early on, if you can set your marketing objectives and price targets before you start marketing, it gives you a better benchmark to begin with. See what your break-evens are, lock in a little bit of profit, and know what level you need to get that job done.
What goals in grain marketing are achievable and can be measured at the end of the year?
Depenbrock: Look at where the market finished for an average and compare yourself to that. Also, learn the seasonal trends and compare yourself to those. Finally, we offer various contracts where, even if the farmer isn’t participating, he can see its performance and compare with those results as well.
Should I be evaluating my results during the crop year? How can I do that in a volatile situation?
Wamsley: Absolutely, and there are tools to help. A lot of customers I work with use GrainBridge to help track where they are against their targets. There’s a scenario planning feature that allows you to see the impact if yield or price change even two or three years out.
Have you seen a farmer make a good decision using an evaluation tool like GrainBridge?
Wamsley: One farmer using GrainBridge plugged in his forward sales, and was confident of a pretty good yield. Even though the market had dropped nearly 40 cents in corn, his calculations in GrainBridge showed he was still meeting his target, so he concluded that delaying sales wasn’t worth the risk of the market dropping even lower. Tracking your targets as you go enables you to pull the trigger at times you normally wouldn’t just based on the price that day.
Jason, how have you seen farmers learning from experience to improve the following year?
Depenbrock: In 2017, the way the price environment was, guys were holding on to grain in early spring and waiting for a magical number in June that we never got to. So over the summer they had to move it at lower levels than they wanted to. What I’ve seen this year is an improvement at moving grain early and spreading it out over the March, April, May, June timeframe.
Wamsley: I’m working with some producers who plan two and three crop years at a time to make sure we take advantage of what the market is giving us, if that’s profitable. They’re not afraid to put floors on or take some risk out in the future, because we have carry markets right now that reward it.
What can we learn from trends in the market?
Depenbrock: You always pay attention to the fundamentals. If you look at a 10-, 15- or 20-year corn chart, for example, you can see a clear-cut pattern year over year, where in January we start rallying in the market and typically it’s a steady climb until June. Then, if we have a good crop, the market starts to tail off and move lower all the way into the fall of the year. There are exceptions, such as 2012, when the crop had weather issues and prices rose toward harvest.
Wamsley: The year 2012 is still in the back of people’s minds [who were disappointed by their forward contracts], but we need to remember that was a drought year. And also, if you’re marketing throughout the year, remember that just because you put a cash sale on some bushels, it doesn’t mean that sale is done. If you see an opportunity, you can still use options or other marketing tools to protect the rest of your bushels or capture a rising market.
You’re saying there are opportunity costs to learn from, too—not just actual profit or loss?
Wamsley: Yes, a lot of people have left money on the table because they were gun shy after 2012. But my customers who priced two or three years out were pleased to be getting $5.40 cash corn [in late 2017].
Are you seeing farmers getting comfortable with a wider variety of marketing instruments?
Depenbrock: With the farm economy the way it’s been, guys are hungry for new ways to market their grain. As farmers become younger and more technologically advanced, they’re looking for any way they can to bring value back to the farm.
Is it important to have someone else help you evaluate your grain marketing success?
Depenbrock: By all means. It helps to bounce an idea off someone or just get reassurance that, yes, that’s exactly what you should be thinking. This is where ADM representatives come into play—just being the producer’s partner in all of this. We have a mutual respect with our producers and some of them become very good friends. It makes a difference.
Evaluate your 2018 grain marketing plan with someone objective. Contact your local ADM representative today.
Past performance is not indicative of future results.
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