Scripting Your 2019 Game Plan
Grain marketing continues to be one of the most challenging aspects of any farming operation. This was never more evident than last year when traditional fundamentals gave way to the reality of changing trade agreements and Chinese trade disputes. We wondered if tariff implementation was just a threat. Or, if tariffs were imposed, how long they would last. The unpredictability of the situation made it difficult to make pricing decisions. Daily and weekly price swings were the result of impromptu news conferences and random tweets. And all of this took place while you were focused on your own challenges on the farm during planting and harvest.
For many, this understandably led to marketing paralysis while prices slid lower.
Farmers get all kinds of unsolicited help in marketing their grain on television, in print and even through tweets. Too many times it comes in the form of, “Well, this is what you should have done,” which is of no help after the fact. CME and grain merchandisers have also introduced new hedging tools over the last several years designed to help farmers with their marketing. But you need to cut through all that noise. Remember, one of the major keys to effective grain marketing still comes down to just one thing; having a solid plan. Ever hear that before? And as important as it is to have a plan in place, it’s just as important to have that plan in place early in the marketing year.
A Look At the Numbers
In developing a marketing plan, a critical component is to identify some realistic targets of where to take action. It helps to take a look back at previous years to see how the markets have typically performed in the first 5 months of the year. Looking back at the last 5 years, I found that:
- The new crop corn futures market exceeded its Nov-Dec price lows by an average of 10% by June 1st of the following year.
- The maximum gain in that five years was 15%, and the minimum gain over the Nov-Dec lows was 7%. Using December 2019 corn futures, this would translate to an average price gain to $4.30 ½.
- The maximum gain would be $4.50 while the minimum gain would be at $4.18 ½.
- The soybean price data showed that the average price gain from the Nov-Dec price lows prior to June 1st of the following year was 14%.
- The maximum gain was 38% and the minimum gain was 6%.
Using November 19 soybean futures, this would translate to an average price gain to $10.24. The maximum gain would be $12.40, while the minimum gain would be $9.52.
Historically, corn and soybean values see their highest yearly prices most often in June and July as production concerns peak. However, since 1990, the corn market hit its yearly top 6 times in the months of March-May, whereas the soybean market topped 5 times in that same period.
So How Do I Navigate the Markets Effectively? By Having a Plan.
The best way to effectively navigate volatility in the markets is to have a sound plan from start to end. Many farmers don’t want to create a plan early in the marketing year because of the potential uncertainties it involves: acreage mix, cost of production and weather. This year we can add trade developments to that list. But in reality, how many important decisions are made in any farming operation with total clarity? Marketing your grain is no different. You grow grain to sell it. Your hope is to sell at the top of the market – but let’s be realistic – what a farmer should really be doing is aiming for a price level that nets a reasonable return for the hard work and financial risk they put into their farm.
How Do I Net a Reasonable Return? By Scripting Your Plays.
As described above, the first 5 months of the year can provide some excellent pricing opportunities. The great Hall of Fame football coach Bill Walsh developed a now popular strategy leading up to a contest of scripting the first 15 plays of a game. Among the reasons for this was to get his team focused on tactics and a plan. So think of me and my team of analysts as your grain marketing coaches. We’ll take the time to script your first set of marketing plays NOW based on your goals. This is in your control; we will help you identify the best set of plays based on your strengths as a player, keep you well informed about everything else that’s happening on and off the field, and help you execute the strategy successfully.
We like to see farmers at least 35% priced prior to putting the planters away. Whether you do it in the cash market or with futures and options, take 35% of a conservative yield estimate and set your game plan. Any marketing plan needs to be fluid as conditions and objectives will change. By “scripting” some early season marketing decisions, it will provide the needed focus, reduce emotion and provide greater flexibility as the year moves forward. It is now time to “kickoff” your 2019 program!
To get started on your plan, fill out the form below and a Grain PhD “coach”, or Ag Risk Specialist, will be in touch with you shortly for your free marketing consultation. If you’re ready to get started now, skip the line by calling 1-844-472-4601.
The information conveyed by 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 guaranty or predict future events, including the pricing and pricing movements of commodities and commodity futures contracts.