When to Adjust Your Grain Marketing Plan
There’s a fine line between staying flexible in your grain marketing and acting on a hunch. Learn the difference from Dale Jackson and Jim Sibbel, ADM representatives who work with grain producers to navigate challenging markets. In Episode 4 of ADM’s In the Driver’s Seat podcast, Sibbel and Jackson discuss the right reasons to adjust your marketing plan—and when you should stay the course.
Sibbel is an Integration Manager in the Northwest U.S., and Jackson is a Territory Origination and Sales Manager in Central Illinois. Below are highlights of the conversation. You can listen to the full episode here:
When the growing season is underway, how firm should my grain marketing plan be?
Jackson: There’s no one-size-fits all plan, but of the farmers I deal with, those that have more success are usually about 30% sold before planting, maybe 30% sold before July when the weather market is over, and then they save the rest for bin bushels. That way, as markets go up or go down, they have flexibility and can spread their risk throughout the year.
What pieces of my grain marketing plan need to stay fixed vs. flexible?
Sibbel: The fixed parts of your plan are 1) your financial goals, hopefully above your break-even; 2) cash flow—certain times of the year when you need cash; and 3) the amount of storage you have. You stay the course on the concept of your goals. Obviously, the two big factors that change are going to be the market and production. With either of those, at ADM we can help you adjust the plan if we know what you’re trying to achieve.
How soon should I start marketing my new crop?
Sibbel: I look at a marketing plan like a basketball offense. You run the offense to get a good shot. But if you have a lay-up, take it. That’s why I’ve always said to farmers, if we have a market that allows you to get to your goals early in the season, why do we wait?
“I look at a marketing plan like a basketball offense. You run the offense to get a good shot. But if you have a lay-up, take it.”
– Jim Sibbel
Jackson: I agree. If it eases your mind to lock in a sale now, do it. Chances are you’re not going to hit the top of the market very often. Occasionally you might, but most often you don’t. So if you can take some of that risk off, lock in a profitable sale, maybe even above the target in your plan, absolutely, go ahead and lock it in.
Let’s talk yield. What if my yield is shaping up to be better than my plan?
Sibbel: I farm a little myself, and that’s why I like selling my crop on percentages and not necessarily bushel amounts, because going back to Dale’s scenario, if you were looking at 30% sold initially and it looks like yields are going up, maybe that 30% is more like 22% and you have extra bushels you need to make a decision on. That becomes part of adjusting your plan.
How do I adjust if I see markets really starting to slide?
Jackson: There are always several options. As we get closer to harvest, I’m hoping you’ve already got a good percentage of your crop sold at profitable levels. But there are opportunities to lock in a floor if you do see the markets going down and have unsold grain. Or, if you have bin space, and it’s close to harvest, you can lock those bushels up and let’s wait for another day down the road. Communicate with your grain buyer and we can lay those options out for you.
Sibbel: You have to look at where the market is starting when it’s headed down. If it’s a situation where you’re actually making some money and you think it’s going down, your percentages (how much to sell) are probably going to change some. If your yields are better than expected, maybe it’s putting the same amount of dollars in your pocket for those acres. That’s why we say communication with your grain buyer is key, whether the markets are going up or they’re going down.
What grain marketing contracts can I adjust, and which are less flexible?
Jackson: The vast majority of our contracts we can add options to, such as Average Seasonal Price or Price Daily contracts. If they reach your target level, you can price out early. We can also add options to cash sales. Options strategies are a very popular contract for uncertainty in the U.S. weather market.
“When the rains come, or we have higher yields than expected, or we have issues with trade policies, that’s why we have plans and use discipline to sell certain percentages of our crops when we get to our goals.”
– Jim Sibbel
They have the ability to lock in a floor if you do see the markets going down, and still provide some upside potential. That’s why we encourage producers, don’t get hung up if the market goes up or we get in a drought. As long as we’re communicating, we can help protect your risk or participate in that upside.
When should I price out of a contract?
Sibbel: If you’re in a mechanical contract (one that prices automatically) and you’ve reached a point where it matches your marketing intentions and puts enough in your pocket, then do it. But if you think you’re going to outguess the market, that’s the problem you can have. I fall into that trap myself. You listen to the media: “It’s dry in Argentina,” or “It’s wet in Brazil,” and you think prices just aren’t going to stop. But when the rains come, or we have higher yields than expected, or we have issues with trade policies, that’s why we have plans and use discipline to sell certain percentages of our crops when we get to our goals.
Can you give an example of when a farmer made an adjustment that worked, and a time when sticking to a plan would have been better?
In 2012, it was pretty much a nationwide drought. I have a producer who uses price targets and whenever we get there, he continues to sell. In February, if we hit $4, he might sell 10% of his crop. If it’s March, and we hit $4.05, he might sell another 10%. If it’s June and we hit $4.05, he might sell 40-50% at one time. In 2012, when it was dry and the market started taking off, he was able to protect himself on some of the sales he’d made, as well as participate in the upside. Most of that was through communication and working with me on options.
“Producers sometimes tend to look out their back window as opposed to the entire world. Communication with us is what it all goes back to.”
– Danny Pfoff
Another summer, though, it was late June and there was no rain in the forecast. The corn market was red hot and my producer held out. Over the weekend, though, a front developed and the whole Midwest got a nice drenching rain. On Monday and Tuesday, the markets dropped 50%. My producer had allowed his emotions to get into it. Well, we made our first sale at a little over $3. Producers sometimes tend to look out their back window as opposed to the entire world. At ADM, we keep our eye on global markets. So communication between us and our farm customers is what it all goes back to.
* Subject to Terms and Conditions in ADM-provided contract. Please see contract for details.
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