Farm Horizons, Nov. 2006
What do I do with this grain now?
By Myron Oftedahl Farm Management Instructor, South Central College
Wow! We have had a really good harvest; yields are good, moistures were low, prices appear to be going up, so what’s next?
Did you have enough storage for this year’s crop? Did you have a forward contract for the bushels that you had to deliver during harvest because you knew that you did not have enough storage? Do you have a price fixed for any of the 2006 crop?
Harvest is done, fieldwork is done, now I can relax and study the seed catalogs for next year. Right?
Not exactly, there is still some work to be done. Take some time now to write up your 2006 post-harvest marketing plan.
Research shows that we have seasonal pricing trends and that after harvest grain prices typically go up until about June. Granted, this hasn’t been as predictable as what it used to be, but the numbers say that it is still true.
Ed Usset, grain marketing specialist for the Center for Farm Financial Management at the University of Minnesota, has an 11th commandment that states, “Thou shall not hold unpriced grain in the bin after July 1.”
Let’s look at what a post-harvest marketing plan is. We know how many bushels that we have to sell because it is in storage somewhere. We don’t have to wonder about weather markets and how they will affect the growing crop, because we have grown this crop. Weather markets are for the 2007 crop. Yes, we are a global market, and the weather in South America could affect soybean prices. A marketing plan helps control the emotions that affect us when we are selling grain,
So where do I start? Let’s say that you have 40,000 bushels of corn to sell that you have in the bin. First, we need to decide if the market is going to pay enough of a premium that you want to hold the corn in the bin.
As I write this, the premium to hold the grain or the carry in the market is in the $.25 to $.30 per bushel range to deliver in July/August at a couple of our local markets.
Is this more or less than storage costs? Storage cost is $.14 a bushel for nine months, so I can make money by holding the grain.
What is the minimum price that I would accept? If you know your cost of production, this is an easy number to establish. Now, add a profit margin to that number, and you come up with a beginning number.
The average cost of production for the South Central and Southwestern Farm Management Regions was $2.11/bushel for 2005.
Let’s use $2.15, add $.15 profit, and I have a beginning cash price of $2.30. Is this where you want to start?
Write it down. A post harvest plan would look something like this:
8,000 bu. $2.40 cash sell by 2/l/07 deliver?
8,000 bu. $2.55 cash sell by 3/l/07 deliver?
8,000 bu. $2.70 cash sell by 4/l/07 deliver?
8,000 bu. $2.85 cash sell by 5/1/07 deliver?
8,000 bu. $3.00 cash sell by 6/l/07 deliver?
I have broken my sales down to five sales of 8,000 bushels, which totals the 40,000 bushels that I said is in the bin. If I can complete this as written, I would average $2.60 a bushel, less transportation.
I didn’t hit the high, but I didn’t hold on until September, and had to sell at $1.80 because I needed to clean the bin for the 2007 crop.
I have control over what month I deliver the grain, and I can choose if I want to use futures prices or cash prices. By using delivery contracts I avoid paying broker fees for options, puts, calls, etc.
You can view Ed Usset’s marketing plans by going to www.cfftn.umn.edu. Go to the marketing plan section and click on view. Then simply choose which plan you want to look at.
This is a very basic plan, and you can add other details that you want. Grab a pencil and a sheet of paper, write your own post-harvest marketing plan, and begin to implement the plan.
Herald Journal / Enterprise Dispatch