Get your grain marketing house in order
7 tips to start the new year right
This year is concluding with some interesting trends in futures prices mixed with concern over wide cash basis prices. Our MarketSense analysts at Cargill offer these seven tips for getting your grain marketing house in order for the year ahead.
1. Know what your true break-even levels are (cost of production).
After a number of years of price inflation and changes to interest rates, it’s important to re-evaluate your break-even costs. Costs like fuel and fertilizer have been volatile in the last few years and should be updated regularly. Remember to also include those costs that are often overlooked, like equipment payments, taxes, and even your time. Understanding your cost of production can make a real difference in your marketing plan. Being off by just a few cents in tight markets can be the difference in breaking even or making a profit. Knowing your cost of production helps to remove the emotional aspect of decision-making.
2. Estimate profitability projections for the coming year and use the appropriate pricing tool to achieve your goals.
When projecting profits, evaluate the most profitable crop rotation and yields. Establish a delivery schedule for the winter and spring months that match your cash flow needs. The opportunity for farmers to be price-makers as opposed to price-takers has never been better. Cargill offers a suite of grain contracting solutions to help capitalize on the current market environment, limit risk, and manage regret when marketing.
3. Understand your risk tolerance.
Risk tolerance is about your willingness and ability to assume risk. It comes down to your capacity to stomach swings in the market (volatility) and your cash flow needs, as well as the tools you use to execute based on your grain marketing plan. There are different tools available with varying levels of complexity and risk. We recommend consulting with your MarketSense Advisor to gain a firm understanding of how a particular tool or strategy works before taking a position.
4. Use target offers to trigger action.
Target offers can help to trigger action and keep you accountable based on your grain marketing plan. Offers should be based on your profit targets. Even if you only sell one truckload at a certain price level, it can work as a reminder to take additional action in the weeks or months ahead. Once you establish a futures or basis offer, do not lift it. If the market moves, look at selling more grain in the deferred months.
5. Understand the grain flow and demands in your area.
The cash market landscape is changing. More terminals and canola crush plants are being built, and global trade flows are changing that affect Canadian grain. Some cyclical norms are being challenged as this landscape changes. Work with your local advisor to understand the market highs and lows, and use the data to help you establish basis at those key times.
6. Establish a delivery schedule that fits your operation and stick with it.
Too often, delivery times are delayed in hopes of a last-minute market rally. For example, many farmers deliver the bulk of their bin bushels in August and September, when prices are historically low. Aside from capturing the worst basis of the year, holding grain that long can create storage risk. De-coupling delivery with pricing has never been easier, ask your Cargill rep how this can best be achieved on your farm.
|A rule of thumb: Determine the number of bushels you want to take into the summer months unpriced to sell during a potential weather rally. Would it be better to hold a price enhancement contract than physical grain?|
7. As grain marketing plans begin to take shape, revisit the long-term goals for your farm.
Are you looking to expand? Is a succession in the near future? Will you be investing in new technology? Goal planning should not just be done year to year. Developing a three- to five-year plan can help you lay a foundation for long-term success. Finally, consider investing in a MarketSense advisor. These are people who follow the markets and give marketing advice for a living. Marketing grain successfully takes time and commitment.
Disclaimer: The opinions and projections contained herein are those of Cargill Limited as of the date of this publication and may change without notice. Cargill Limited accepts no liability for any loss arising out of any use of or reliance on this publication or its contents.