Why Forward Market?
There’s a reason more farmers are selling portions of their new crop while it’s still in the field—or even before planting. Historical trends in the market make a good case for forward-selling.
“Harvest is when the market has ample supplies of grain,” says ADM Grain Originator Cody Dust. “A farmer’s average price selling across the scale will probably not be as strong as marketing ahead of time. With a forward contract, I can lock in a price before I haul it; but if I’m just selling cash across the scale, I have no idea what my price is going to be.”
Besides potentially higher prices, forward selling can also remove risk. If it costs you $9 to produce a bushel of soybeans and you can make $9.50 today, forward marketing lets you lock in those margins.
“Think of other businesses. They structure their operation around margins. The farm business is no different.”
– Cody Dust, ADM Grain Origination Specialist
Plan around trends
It’s natural to have reservations about pre-harvest marketing. You probably have two concerns:
- Not having a crop to sell, or
- Selling too low if prices go up later.
This is why crop insurance needs to go hand-in-hand with marketing plans. ADM is proud of an exclusive relationship and encourages farmers work with agents of Crop Risk Services.
While there have been exceptions, history is on the side of forward marketing. Early crop-year futures have beat harvest prices 8 out of 10 years for corn, and 6 of 10 years for soybeans. Although weather years like 2012 have made some farmers cautious about selling too early, planning around the exceptional years is not what most businesses do.
“Think of other businesses. They structure their operation around margins,” says Dust. “The farm business is no different.”
Forward marketing: ways to begin
The simplest way to enter forward selling, says Dust, is a fixed-price (cash) contract where you’re not betting on futures—as long as that price is above your cost of production.
“Use this contract on a small, yet meaningful, percentage of your production, where you know you’re putting money in your pocket,” says Dust.
After fixed price sales, consider a hedge-to-arrive (HTA) contract, where you lock in a futures price but set the basis later. Or consider a basis contract to do the opposite: lock in basis now and set the futures reference price later.
Together with offers, these are just some of the ways to venture into forward marketing. To compare other marketing methods, see our Grain Marketing Methods Guide.
Contact Your ADM Representative Today
To see how forward marketing can benefit your operation, contact your local ADM representative. We’d be pleased to walk through all your choices, so you completely understand the risks and benefits.
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.