The Secret to Better Grain Marketing
Successful companies start with a basic business plan. Farming is no different. In fact, with the future of your farm on the line, developing a grain marketing plan is one of the most important factors in determining your success. Yet it’s the piece farmers often find most difficult or intimidating.
That’s the reason we’ve launched our new podcast, In the Driver’s Seat, with a 5-part series on controlling your grain marketing. With these expert insights and practical tips, ADM wants to help you stay in control of your farm’s direction.
In Episode 1, we introduced four principles of risk management. This month, Episode 2 is Plan Your Grain Marketing Simply. In this conversation (summarized below) we tackle strategic planning and budgeting—how to keep it simple and up-to-date as the crop year develops. Our guests are:
- Pat Kroese, Vice President of the farm decision-making software GrainBridge; and
- Nate Brabec, Integration Manager (Western Region) for ADM.
Here’s a summary:
Why is annual planning critical for grain producers today?
Brabec: When we have volatility and markets move, you have to be willing and ready to adapt your business. If you don’t ask in advance, “Is this going to be a good decision?” and “Where could I go wrong?” it’s tough to make decisions. Planning is important anytime, but when times are tight, you definitely want to know the impact of each decision.
What information should I gather, and where do I get it?
Kroese: Some of the core expenses at the top are fertilizer, fuel, cash rents, and seed. Your local bank keeps a running history of your balance sheet for these, and as you home in, you can get detailed invoices from your input supplier. A lot of the fixed or overhead costs, most of those come right from your taxes on schedule F. It lists all your term debt from machine payments to land payments. If you break it down, all of these together show your core per-acre costs really quickly.
Brabec: It’s important you do the research for yourself. Look at it farm by farm. When you go to make decisions, you want to be confident that it’s your number. If you’re conservative (too high with cost estimates), the risk is that you build a number so high it’s hard for markets to achieve those objectives and you never execute. The next part is yield: A small variance in yield can change your outlook. If you’re off 30 to 40 bushels an acre, it’s a big deal.
So without a plan, I don’t know if a market level is good enough?
Brabec: Right. If you don’t know how all the pieces fit together, you can really get yourself in trouble trying to outguess the markets. You have to know all sides of your operation, and you have to use planning technology—or planning in general. Whatever you use is really important.
Crop insurance and cost of living should go into the plan, right?
Kroese: Yes. Probably the most utilized is whole farm revenue protection, because of the comprehensive process it provides in yield reduction and price reduction. Factoring that in helps so you can be aggressive in marketing, if you choose to be.
Brabec: Cost of living, definitely. Some individuals who are maybe more established are fine with a smaller return, while somebody else just starting out may need a larger return. Identify, “What does success look like?”
What do I do with the calculations?
Kroese: You can take those numbers and utilize them as benchmarks and a strategy to execute against. It’s so hard for producers to pull the trigger and say, “Yes, this is a good spot to sell,” because they don’t know what that spot is. They need all they can get because we’re in a tight margin scenario. But when you do know that your break-even on corn is $3.45, yet the coffee talk says it’s in that $3.80 range and it never gets there, there’s a lot of trouble. When you know your break-even is at $3.40 cash corn, and markets are going above that and you can lock in 20 cents or 40 cents a bushel, that’s a good move. If it goes higher, you always have more to sell.
How can grain marketing be simple, and flex with yields and markets?
Kroese: With GrainBridge (free software for farmers), it’s very convenient for the average producer to build budgets in a matter of minutes versus days, and then utilize those numbers as benchmarks. It tracks all of your cash marketing and brokerage accounts in one spot against those benchmarks. We’ve tied your account to a live feed of the markets so that every day, your plan updates automatically. You can make modifications on the fly from your cab to reflect the amount of fuel or another pallet of seed, and you get all new data right at your fingertips.
If I’m not meeting my numbers, what does that say about my planning?
Brabec: There are going to be years where the yield or markets aren’t where you project. If you’re losing $50 an acre, for example, believing you had a bad plan and shouldn’t have sold aggressively might be really inaccurate. Your plan might actually show that without aggressive selling and a smaller yield, you might have lost $150 an acre. On the flip side with better yields, you might have made $15 an acre. Without a plan, you don’t know that stuff. You just know you lost money and you don’t know why.
Tell us about a farmer who really benefited from planning better, using GrainBridge?
Kroese: We’re seeing producers manage expenses farm by farm. Just a year ago we had a large grower in Central Missouri who took their numbers to five landlords, and it really opened their eyes. They showed cost of production, not only per acre but per bushel and said, “Because our rents are at X, we’re going to have to market above $4 and we just don’t know if that’s feasible.” And they were able to adjust rents on three farms. This couple calls me every quarter to say, “Where was this tool 50 years ago? We’ve quit arguing about marketing.”
You’re saying a grain marketing plan can prompt other key financial moves?
Kroese: The best-case and worst-case scenarios you can run are unlimited: market prices going a dollar lower; market prices going a $1.50 higher; or losing half of your crop to a drought. You can plan two or three years out. When folks have these numbers every week and every day, they naturally become better at execution. They work better with their banker, their crop insurance agent, and their marketing advisors; because when they can see a recommendation is profitable or a good decision, they can just go ahead with it.
If a farmer is less experienced with planning and needs a little coaching, who can help?
Brabec: Everybody’s comfort level is different. ADM representatives have good resources and we’d love to help. Just make sure your advisor is good at asking questions and not afraid to challenge you. They should know how to operate a business and help you think through your plan. It could be a person, or a system like GrainBridge.
For help with your grain marketing plan, reach out to your local ADM representative.
For more information—or to get your free GrainBridge account—visit GrainBridge.com.
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.