Take Control of Your 2019 Grain Marketing
A record harvest along with lingering trade uncertainty have weighed on markets. But as you continue to farm, there’s one thing you have to fall back on: discipline—doing the right things, step by step. It’s not too early to estimate 2019 acreage and yield, then sketch out a preliminary grain marketing plan. By planning now, you can participate in two key contracts that have a January enrollment deadline. Sign up both 2019 and 2020 bushels and take advantage of a typical spring run-up in the market. Don’t miss that boat.
Here are two strategic approaches you can use in early season planning.
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 corn and soybean production priced by mid-June, in monthly increments.
For example, you’d divide 100,000 bushels into 5,000-, 10,000- or 15,000-bushel portions, and sell a portion each month using a different pricing tool or contract. The strategy is to diversify through a variety of contracts and marketing methods. Understanding your cost of production is the first step. Your goal is to capture profitable price targets and avoid chasing the market.
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 can be challenging to execute, many successful producers use a portfolio approach. This is simply creating a pie chart of your projected production, reserving a portion to market on your own, and enrolling the other “pie sections” in strategic and diverse contracts. The goal is to achieve price targets by incorporating multiple pricing windows, traders, and market mechanisms.
Early Season Planning
Two common mainstays in a grain marketing portfolio are an averaging contract and a professional pricing component. At ADM, we call these Average Seasonal Price (ASP™) and ADM AdvantageSM Expert. We’re enrolling 2019 and 2020 bushels in both of these programs through January 25. (For soybeans, ASP enrolls through May and pricing begins in the summer.) Keep these deadlines in mind as you plan!
Together with the bushels you’re marketing yourself, a portfolio of contracts spreads your risk while harnessing the wisdom and skills of others.
Enrolling in the ASP corn contract gives you the average futures price between roughly February and June, a historically “price-friendly” window. You choose the quantity of grain you want to sell, your delivery period and destination, and, at some point before you deliver, you get to set the basis. This contract has exceeded the average harvest price 8 out of 10 years. (For soybeans, the pricing period is June and July and favorable prices have occurred 6 of 10 years, relative to harvest prices.)
By contrast, the ADM Advantage Expert contract puts a portion of your grain in the hands of experienced professionals to make pricing decisions for your contracted bushels. You choose any or all of our three marketing experts as well as a pricing period, delivery point, and basis.
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) allows you to maintain control while still harnessing the wisdom and skills of others. Plus, it provides a strategic balance of risk and reward.
An option for marketing your own grain is to leverage ADM’s Marketing Partners AdvisorySM (MPA). With this free offering, you make pricing decisions guided by recommendations from a knowledgeable group of market observers. We provide these recommendations each week in a special MPA e-newsletter.
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—can help you avoid hasty decisions under the gun.
Need some help thinking through a portfolio for current inventory or anticipated production? Your ADM representative is happy to help. And don’t forget the January 25 deadline to enroll in ASP and ADM Advantage Expert.
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.