Do you know what the seasonal price trends are in the grain markets? And how to use them to protect your price risk? Having the knowledge and timing to lock in your sale price when prices are usually at their highest can make a big difference in maximizing your potential profits.
Which is what smart marketing is all about. To get started you need information and you need a plan.
First, the plan. We know, we know….many of us tend to avoid that planning session because we feel like it’s worse than having dental work performed. But when the market is moving fast, it’s easy for emotions to take over and prompt a sale at the wrong time. A grain marketing plan helps us make smarter, more educated decisions by sticking to a predetermined plan regardless of how the market swings.
Becoming a planner rather than a reactor in our grain marketing can prevent emotional decisions we will regret later on.
Here is the good news – making a plan does not have to be hard. We promise. Grain PhD has easy-to-use free software and price risk experts ready to help you easily create a plan.
We believe that winning teams and successful businesses have one main thing in common…they both have plans that include both offensive and defensive strategies. In farming, our offensive strategy includes growing the best crop we can, managing our cost of production, and using the cash market to sell our grain or livestock. Defensively, we use the futures market as a hedge to help protect against price risk. Keep in mind that the purpose of hedging is not to maximize profit, but to reduce risk.
This is where the information part comes in. Don’t panic – think of Grain PhD as your Defensive Coordinator. One who has all kinds of information that will help you out….starting with the fact that farmers who use the market for price hedging over time seem to be better off than those who take huge risks and don’t implement a hedge plan.
Soybeans: Let’s look at the hedging opportunities that have been available in the Soybean market over the last 10 years. From 2007 to 2017 the mid-point of the November Soybean trading range offered an average gain above the average cost of production of $2.58 per bushel or a 30.4% profit.
During six of those years, from 2008 to 2014, the entire November Soybean futures range was above the average cost of production. The average return using the mid-point of that range was $3.43 per bushel or 40.6% above costs.
This chart illustrates the opportunities that were available to farmers who hedged through the futures market and locked in a price that was well over the average cost of production. Of course your specific cost of production is unique to you, and so is your tolerance for risk. Which is why the specific hedge position you choose to manage your price risk will be unique to you as well.
Corn: At the same time, the hedging opportunities in the Corn market have also been very strong between 2007 and 2017. The mid-point of December corn trading range offered an average gain above the average cost of production of $0.90 per bushel or a 23% profit.
The chart below shows the opportunities that were available to farmers who hedged their Corn crop through the futures market and locked in a price that was well over the average cost of production.
It’s clear that both the Soybean and Corn charts show that the market consistently offered selling opportunities over the last 10 years which provided us with a decent return above the average cost of production. The risk management experts at Grain PhD are your Defensive Coordinators who will give you the information you need, and strategize with you on your unique goals and situation, to help you take advantage of these opportunities.
They can also help you adjust that plan as need. Selling futures is a basic hedge and is one way to lock in a price that is acceptable. But options can also be used to fine tune your hedge strategy. What’s really most important is that you execute some type of hedge position when future prices offer an opportunity to lock in a profitable price.
Smart marketing requires information and a plan. You can do this. We can help. The Grain PhD team is ready to help you build your marketing plan on free software, and find opportunities in the futures market that will help you manage price risk. All of which is designed to help you maximize your profit and reduce your stress.
The information conveyed by Grain PhD, ADMIS or its affiliates to the audience is intended to be instructional and is not intended to direct marketing, hedging or pricing strategy or to guarantee or predict future events, including the pricing and pricing movements of commodities and commodity futures contracts.