Resolve to Be Disciplined in Your Grain Marketing Decisions
Welcome to 2017! We hope you’ve had a restful holiday season, and that you’re sticking to your New Year’s resolutions. Did you resolve to be more strategic in your grain marketing? It might be a good one to add to your list.
Let’s admit it. Record harvests and supplies have created markets that are less than inspiring. Producers have one thing to fall back on: discipline. Doing the next right thing for their operations.
You’ve already exercised discipline with your 2017 crop inputs, possibly taking advantage of early-pay discounts or tax planning for fuel or fertilizer. Smart. But now, along with your unsold 2016 grain, your 2017 risk is mounting. That dictates two more disciplined steps: A risk-appropriate level of crop insurance, and a level-headed, proactive grain marketing plan.
There are several approaches to grain marketing. For the moment, let’s focus on two.
Monthly Pricing Method
Recommended by the Center for Farm Financial Management at the University of Minnesota, this method recommends you get 75% of your expected production priced by mid-June, in monthly increments.
For example, you’d divide 100,000 bushels of corn into 10,000- or 15,000-bushel portions, and sell a portion each month using a different pricing tool. The idea is diversification through a variety of contracts, marketing methods, and price targets. Understanding your cost of production is a key component.
The challenge in a range-bound market is finding pricing tools capable of hitting desired targets—then executing on the opportunities.
Contract Portfolio Method
Because monthly pricing is complex, many successful producers opt for a portfolio approach instead or in addition. This simply starts by creating a pie chart of your projected production, reserving a portion to market on your own, and enrolling the other “pie sections” in selected contracts. You still spread risk as you tap into multiple pricing windows, traders, and market mechanisms.
Two common mainstays in a grain marketing portfolio are an averaging contract and the use of a professional pricing component. At ADM, we call these Average Seasonal Price (ASP™) and ADM Advantage℠ Expert. We’re enrolling 2017 and 2018 bushels in both these programs through January 27. Keep that deadline in mind as you plan! Even if you don’t participate, explore other opportunities that may work well for your operation.
Together with the bushels you’re marketing yourself, a portfolio of contracts spreads your risk while harnessing the wisdom and skills of others.
An ASP corn contract gives you the average futures price between February and June, a historically “price-friendly” window. You choose the quantity of grain you want to sell, your delivery period, your destination, and you set the basis. This contract has exceeded the average harvest price 8 out of 10 years.
ADM Advantage Expert gives you a choice of three marketing experts to price a portion of your grain. Again, you choose the delivery period, delivery point, and set the basis.
A third option is to leverage ADM’s Marketing Partners Advisory℠. With this free offering, you make pricing decisions guided by a team of knowledgeable ADM personnel. You make all of the decisions and execution with the information and recommendations provided each week in our e-newsletter.
ASP and ADM Advantage Expert both have an early price-out feature, so you maintain some control of your final pricing. With the bushels you market on your own, a portfolio like this (see illustration) maintains your control while still harnessing the wisdom and skills of others.
Just Get Planning
Whether you use these methods or another one you prefer, what matters is just getting started. Aim to cover your production costs, of course, and to spread risk. It’s fine to have a broad outline at this point and adjust as the crop-year develops. Selecting contracts in the “slow” season—up to half of your anticipated new-crop production is what we’ve suggested for some time—can help you avoid hasty decisions under the gun.
Need some help thinking through a portfolio for current inventory or anticipated production? Your ADM Merchandiser is happy to assist. And don’t forget the January 27 deadline to enroll in ASP and ADM Advantage Expert.
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.