Written By Darren Hefty
Successful companies start with a basic business plan. Farming is no different. In fact, with the future of your farm on the line, developing a grain marketing plan is one of the most important factors in determining your success. Yet it’s the piece farmers often find most difficult or intimidating.
My brother and I recognized this challenge and created Grain PhD to make marketing on your farm easier. Grain PhD provides you with all of the tools you need to create a successful marketing plan: educational resources, farm management software and reliable Ag Risk Specialists. I recently sat down with two members of the Grain PhD team for a brief Q & A to get their insight on creating a successful marketing plan: Pat Kroese and Tim Smith.
Grain PhD Senior Ag Risk Specialist
VP of Farm Marketing Software, GrainBridge
Q. Why is annual planning critical for grain producers today?
TIM: It’s no secret that agricultural marketing is challenging, especially in today’s volatile environment. However, farmers who are proactive in their marketing efforts and have a good working relationship with their Ag Risk Specialist will be better prepared, less emotional and more confident in their decisions if an unpredicted change in market value occurs. Don’t be caught selling because you have to – ask questions, educate yourself and be prepared for a curve ball to be thrown your way on occasion.
Q. What information should I gather, and where do I get it?
TIM: During the planning phase of each marketing year, it’s important to identify average yields and expected acre allocation, as well as all operational costs, which are readily available from your suppliers and/or financial institution. Ideally, you would then enter these figures into a farm management software such as our GrainBridge program. This allows you to easily make year to year comparisons and an accurate breakeven so you and your Ag Risk Specialist can develop profit goals. Market information can be acquired through your Ag Risk Specialist. My hedge team and I provide news that is relevant to making grain marketing decisions including daily market summaries, weather, demand news and grain report summaries. Information is widely available, but remember it is not as simple as accessing information – it’s also understanding how to use the information you have at your fingertips. Don’t be afraid to ask questions of your Ag Risk Specialist – their goal is your success.
PAT: Some of the core expenses at the top are fertilizer, fuel, cash rents, and seed. Your local bank keeps a running history of your balance sheet for these, and as you hone in, you can get detailed invoices from your input supplier. A lot of the fixed or overhead costs come right from your tax form, the schedule F. It lists your term debt from machinery payments to land payments, as well as capital purchases. If you break it down, all of these expenses together show your core per-acre costs very quickly.
Q. So without a plan, I don’t know if a market level is good enough?
TIM: There are years where producers experience market values substantially higher than their cost of production and there are years, such as recently, where producers experience extremely tight profit margins. In either situation a marketing plan will help you manage your financial and emotional stress, and allow you to work more effectively with your ag risk specialist to navigate and mitigate overall price risk. Incorporating a plan allows you to know what levels are in-line with your farm’s overall profit goals and allows you to make informed rational decisions, rather than emotional ones during difficult times. In addition, a plan will give you the ability to review year to year results and identify what worked, what failed and why.
Q. Crop insurance and cost of living should go into the plan, right?
TIM: Yes. The GrainBridge software – which is free for farmers with Grain PhD – is excellent for this purpose. A Grain PhD expert can help you navigate the software and properly input your cost figures so you can obtain a more accurate operational cost report. An added feature of using GrainBridge is the ability to email the report directly to your financial institution and share it with your Ag Risk Specialist, which keeps your marketing team on the same page.
PAT: Yes. Family living is often forgotten but is one of the major expenses that should be incorporated. Probably the most utilized crop insurance program is revenue protection, because of the comprehensive protection it provides in yield and price reduction. Factoring that in helps so you can be aggressive in marketing, if you choose to be.
There are years where producers experience market values substantially higher than their cost of production and there are years, such as recently, where producers experience extremely tight profit margins.
Q. What do I do with the calculations?
PAT: You can take those numbers and utilize them as benchmarks and a strategy to execute against. It’s so hard for producers to pull the trigger and say, “Yes, this is a good spot to sell,” because they don’t know what that spot is. They need all the information they can get because we’re in a tight margin scenario. But when you do know that your break-even on corn is $3.45, yet the coffee talk says it’s in that $3.80 range and it never gets there, there’s a lot of trouble. When you know your break-even is at $3.40 cash corn, and markets are going above that and you can lock in 20 cents or 40 cents a bushel, that’s a good move. If it goes higher, you always have more to sell.
Q. How can grain marketing be simple and flex with yields and markets?
PAT: Using GrainBridge software makes it very convenient for the average producer to build budgets in a matter of minutes versus days, and then utilize those numbers as benchmarks. It tracks all of your cash marketing and brokerage accounts in one spot against those benchmarks. We’ve tied your account to a live feed of the markets so that every day, your plan updates automatically. You can make modifications on the fly from the cab of your tractor to reflect a change in fuel costs or seed cost and new data appears instantaneously.
Q. If I’m not meeting my numbers, what does that say about my planning?
TIM: When a loss occurs, it does not always mean your plan was flawed. Occasionally a plan acts as a safety net to limit overall losses in a down market and without a plan the farmer would be exposed to an unlimited amount of price risk. Speak with your Ag Risk Specialist frequently and ask questions. A good marketing plan is flexible, not static, and they will be able to assist you in making necessary adjustments to your plan as the marketing year progresses. Your Ag Risk Specialist should be able to provide education on proper strategies as changes occur, not only in the marketplace, but on your farm.
Q. Can you tell us about a farmer who benefited from planning using GrainBridge?
PAT: We’re seeing producers manage expenses farm by farm. Just a year ago we had a large grower in Central Missouri who took their numbers to five landlords, and it really opened their eyes. They showed cost of production, not only per acre but per bushel and said, “Because our rents are at X, we’re going to have to market above $4 and we just don’t know if that’s feasible.” And they were able to adjust rent on three farms and make a tough decision to discontinue renting a couple other farms.
We’ve tied your account to a live feed of the markets so that every day, your plan updates automatically.
Q. You’re saying a grain marketing plan can prompt other key financial moves?
PAT: The best-case and worst-case scenarios you can run are unlimited: market prices going a dollar lower; market prices going a $1.50 higher; or losing half of your crop to a drought. By running these scenarios you can see the potential impact on your operation and make better decisions because of the information. Having the information readily available makes for better conversations with your banker, crop insurance agent and your Ag Risk Specialist.
Q. If a farmer is less experienced with planning and needs a little coaching, who can help?
TIM: This is exactly why Grain PhD was created – our goal is to educate farmers and take the stress out of grain marketing. When you visit www.GrainPhD.com and sign up for a free account you will receive all of the tools to create your marketing plan; extensive educational materials, market research, access to your free agri-management GrainBridge software account and the ability to ask your questions to a Grain PhD Ag Risk Specialist, like me. You can also call 1-844-472-4601 and ask for Tim Smith to create a plan with me today.
Our objective is to reduce marketing challenges by providing you with the tools to create a customized marketing plan on your farm – our experts will work with you to understand your farm and risk tolerances. Creating a plan for your farm with a Grain PhD Ag Risk Specialist takes less than an hour and doesn’t cost a dime until you decide to execute a trade. Take control of your farm by calling 1-844-Grain-01 (1-844-472-4601) to skip the line and get started today.