New Course Helps Producers Navigate Grain Markets and Build A Strategy

Grain prices are at historical highs and with anticipation for plentiful yields and profitability, producers will lean on grain marketing strategies to meet their goals. The markets are strong, but volatile, so comparing different approaches may be helpful during the summer months.

One resource to help get you started is a new, online course from ADM called Shift (Successful Habits in Farming Today). It was developed to help producers and their families think more deeply about the critical elements that make up their business management plan.

With market changes frequently top of mind, producers may be particularly interested in the lessons covered in the fourth learning gear of Shift, which include:

• Forward marketing strategies to lessen risk and improve prices
• Contract choices based on market opinions and price goals
• Marketing methods based on individual comfort levels

Capture Opportunities with Futures and Basis

This gear highlights the importance of managing your risk by watching and understanding local basis patterns in your area. If you know when basis is typically the strongest at your nearby elevator, you can consider locking in a basis contract.

Grain Marketing Economist Ed Usset from the University of Minnesota and a featured contributor throughout the Shift course says, “Be a student of your basis. Know the patterns. Know what a normal basis is in your backyard.” The typical basis in Minnesota differs from what is “normal” in Illinois, Indiana or another state, according to Usset.

By tracking your local basis, you can form an opinion about the futures market, and both will help guide your marketing plan.

Understand Marketing Terms and Tools

There are several ways to market your grain, including spot sales, storing your grain, set price sales, and price targeting with forward contracts. While the first three are fairly straightforward, the course goes further into making decisions about your forward contracting strategy and potential contracts that may work for you.

A few contract options include:

• Hedge-To-Arrive (HTA) – You set a bushel amount and a futures price but leave basis open. This prevents any futures risk and allows you to potentially capture better local basis levels.
• Average Seasonal Price (ASP^™) – You earn the average during a historically price-friendly window identified by ADM. An equal portion of bushels is priced daily and on the final pricing date, your ASP futures reference price is established.
• Delayed or Deferred Price (DP) – You deliver grain and transfer ownership, with the right to set both futures and basis later. This is an opportunity if you don’t have on-farm storage.
• Price Daily – Works the same as ASP, only you set the window customized to your preferred delivery window or market bias.
• Price Accumulator – Automatically prices bushels daily and could price additional bushels if the market goes higher. You can also establish a floor (or guaranteed price).

For more information, you can review this helpful contract comparison chart.

Buying or selling a futures contract can allow you to offset a sale or purchase of an equal amount of grain to establish a futures price. The course discusses the scenario below for more context:

A producer might sell a futures contract to offset harvest production to lock in a price. For example, he or she could sell their December corn futures contract in May. If the futures prices fall between May and December, the short futures contract will gain in value, offsetting the lower price that will be received for grain at harvest.

Choose Strategies Right for You 

In the fourth gear, a self-assessment or a series of questions are available to help producers outline their top priorities and consider the level of risk they are comfortable with for their operation. Going through questions on the topics listed below can help producers determine what types of contracts may be best for them:

• Firm price or target price?
• Short-term or long-term reward?
• Set or enhance a price?
• Active or automatic?
• Traditional or non-traditional?

Mark Lipcaman, grain origination manager at ADM and a contributor to the course, says “Whether it be a traditional contract or a non-traditional contract, we really are able to fit the individual customer’s needs based on what we learn from talking with them.”