Grain merchandisers have a front-row view for behind-the-scenes aspects of commodity sales after crops leave the field and enter the local or national marketplace. Over time, those daily impressions of farmer marketing can evolve into strategies to avoid decision-induced disappointment.  

Roger Gattis and Jason Wheeler, grain merchandising specialists with White Commercial Corp., shared their perspectives on farmer marketing with the University of Arkansas’s Fryar Risk Management Center. Three limiting factors affecting farmer marketing rose to the forefront of their experiences.

Understanding commodity marketing by farmers comes down to one root goal – turning grain into cash quickly.

 “The talk about seasonality pre-harvest is that we get rallies in the summertime, because peak uncertainty occurs when the crops are in the ground.” Gattis said. “That’s the time the farmer should be acting. In my simple mind, the farmer’s goal should be to turn grain into cash as soon as possible.”

Taking no marketing action, straight commodity sales and deviating from a profitability-based marketing plan all can stand in the way of a farmer’s end-of-season success.

Inaction

If no marketing plan is in place, no action takes place, especially under the pressure of a price rally. When will an eventual run meet its peak? What price is a good price? The truth is, it probably doesn’t matter, so long as the grain is marketed at a profitable price for the producer.

“The best way for a producer to look at this is profit per acre. You can have a goal of $50 or $100 net profit per acre that you can carry with you from season to season,” Gattis said. “And when a price hits, that allows you to make that with that year’s cost and what you expect that year’s yields to be, then you take action.”

Often, inaction comes when prices fall short of a previous year’s high, or when a decline begins following an unforeseen event. Having a price range in mind that allows for profitability and methods to act on that plan relieves some of the mental pressure of pursuing the “right” grain price.  The constant every year is your profit- per-acre goal.

The guiding principle to provoke action for farmers marketing their own grain is to know the break-even price for profitability and pursue contracts that meet or exceed that base price.

“No one can tell you what your profit per acre goal is as a producer,” Gattis said. “You have to come up with that, if not by yourself, then within a small group of people that’s concerned with your business.”

Straight Marketing

If the price at a local elevator or other end user reaches a point of profitability, marketing straight to that outlet is absolutely a viable marketing option. But often, marketing using futures contracts or target contracts can give producers a greater range of pricing and timing options.

“I think the piece of the puzzle that’s not talked about a lot out there on the farm marketing side is when you sell and when you deliver don’t need to be the same time,” Gattis said.

Pre-harvest marketing is often free to the grain seller, especially taking advantage of options like target contracts at elevators.

“Take advantage of opportunities that don’t cost anything. Marketing pre-harvest is free. There’s no cost involved,” Wheeler said. “If you wait to market grain till after harvest, even if it’s stuck in a farm bin that you paid for over 20 years, there’s a cost involved with that grain sitting there unpriced.”

Sitting, unpriced grain often results in missed marketing opportunities.

Plan Deviation

Once a marketing plan is in place, one of the most common missteps Wheeler and Gattis have observed is deviation from the plan.

Maybe price rallies and producers want to hold out for the highest price rather than marketing at profitable levels, and they begin to remove target contracts. Or, maybe instead of selling the set amount, the producer sells smaller quantities to attempt to hold out for a later rally.

Both types of deviation can limit profit.

“He doesn’t need to sell 100%, but he does need to sell a meaningful amount,” Gattis said. “The temptation is, early in the season, say around planting time, the farmer puts in a target order and a few months later it hits. The target order was for say, 5% of expected production and he does nothing else until harvest. Well, he started out good, but that sale was not a meaningful amount.”