Common Marketing Mistakes and How to Avoid Them



The reluctance to do some pre-harvest pricing, failing to understand and track the local basis and holding grain in storage too long are among the common marketing mistakes made by farmers, according to a grain marketing specialist.

Backed by extensive futures and basis research, Ed Usset, from the Center for Farm Financial Management at the University of Minnesota, outlined the mistakes and how to avoid them during a presentation last week at the Southwest Agricultural Conference in Ridgetown, ON.

Displaying seasonal price charts for corn and soybeans, Usset said farmers can achieve higher returns by overcoming their reluctance to pre-harvest price and simply targeting sales at those times of the year when markets are typically the strongest. In fact, over the past 20 years, December corn futures have declined from the spring into the fall 75% of the time, meaning it often pays to get a sale on the books at planting time.

Similar to cashing in on the seasonal highs in futures, Usset said farmers should also pay attention to when their local basis is the strongest and weakest. Typically, the basis is always the widest at harvest as the crop starts to come off and then gradually improves until it reaches its highest in the spring as farmer selling dries up into the planting season. After that, the basis normally retreats into the summer after the crop is planted. Watching closely and selling at the right time might only net a farmer 5 or 10 cents/bu on the basis, but in marketing, every little bit helps, he said.

Usset also warned farmers against not having an exit strategy. For some farmers, holding unpriced grain in the bin becomes a problem because they end up waiting too long for the market to give them a better price. Farmers may tell themselves they’ll sell when the prices goes up another 25 cents/bu. But when it does, they tend to want to hold out for another 25 cents. And if the market goes down, they become even more determined holders, waiting for the price to rebound. In most years, the best prices are often seen in late spring/early summer, and that is a good deadline for farmers to sweep their bins clean, he said.

A natural progression of the lack of an exit strategy, Usset said those farmers who only have the bin space to store a single crop sometimes hold on to the point they are forced to unload all of their crops just weeks, or even days, before the next crop starts to come off the field. He admitted in some years – maybe 1 in 5 – the holding strategy can work. A good example is those producers who still had all of their 2011 corn or soybean crop in the bin as the 2012 Midwest drought unfolded. In most cases, however, he said no grain should be held past July 1.

Finally, Usset said farmers should avoid thinking they can avoid storage costs when they sell grain and buy a call. In this case, some farmers will be content to sell at the harvest price and them try to book a profit from buying an at-the-money call option at harvest and then holding to expiration. But years of data debunk the notion it’s a play worth making. In just four out of 29 years it worked for corn, 13 of 29 years it worked for soybeans and 7 out of 29 years it worked for Hard Red Spring wheat.

Source: DePutter Publishing Ltd.

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