As a producer, you know the value of being prepared. You know the importance of monitoring your circumstances and knowing that sometimes, timing can be everything. And that mentality doesn’t just apply to harvest. In an ever-changing crop market, it’s important for producers to set themselves up for success with a grain marketing plan. This article will not only talk about how to start your plan, but also, the importance of one. It’s easier than a lot of producers think, and can be made even more impactful with the assistance of an expert.
There’s not one single way to market your grain, but we’re here to give you what all smart grain marketing plans include. Every farm is different and every producer is different. Understanding the following factors will assist you in determining and managing your farm’s total business risk and the unique opportunities you have. This will also give you a better idea of the value in type of crops grown, different marketing strategies available, when to establish price targets and how to determine profitability.
Let’s take a look at what makes up a sound grain marketing plan.
1. Crop Production Plan
Develop a crop production plan that is well suited to your rotation that maximizes potential.
A crop production plan, developed before the season starts, helps growers calculate how much of each crop to plant and their profit margins. Having a plan like this can significantly reduce the stress and chaos of a production season, and can contribute to the profitability and productivity of your far.
First, examine all the crops that could be considered in your production plan. When doing so, consider all the important agronomic factors including crop rotations, herbicides, equipment requirements, and management needs for the farm.
Determine what crop in your field will be the most profitable. Calculating your cost per unit identifies the most profitable crop to grow in your plan. This allows you to better understand the price you will need to define your cash obligations and cost hurdles over the crop year.
Producers may use Business Risk Management (BRM) systems to help them manage the risks of income declines caused by factors like drought, floods, low prices, and higher production costs. The services complement each other by offering insurance against various forms of losses as well as cash flow options. These systems help decrease stress and keep you prepared no matter what.
2. Market Analysis
Gather unbiased market information from credible sources to make good grain marketing decisions. Monitor market conditions to make a sale when pricing is strong.
A variety of information sources should be used when deciding your selling price. Keeping in touch with unbiased local investors, cash grain traders, commodity futures brokers, and market analysts on a regular basis can help round out your opinion and help you make informed selling decisions. Participating in a marketing club is also a fantastic way to broaden your knowledge and expand your information sources.
Again, every producer’s concept of valuable market information differs. Some producers may want precise pricing advice, whereas others would rather have general market data to use in their own marketing strategy.
No matter where you prefer to get your data from, you should always get an unvested opinion, free of any bias from a broker, dealer, or grain business with an interest in convincing you to sell your grain or exchange a product. This is a surefire way to know you’re selling your grain at the right time for the right price.
3. Financial Position
Understanding where you stand in an ever-changing market
Now it’s time to determine pricing for your grain. Start by estimating the cost of production for each crop. This reveals your break-even price for your commodity. The break-even price can be calculated by dividing total cost attributed to that crop by expected return. Your strategy should always be geared to selling above the break-even level.
Let your break-even price guide you. But also let it keep you disciplined. It’s good to have a target price in mind so you’re not holding out for the market price to climb higher and higher. Play it safe and set yourself up for that nice, secure target profit.
4. Marketing Strategy
Understand your risk tolerance and reduce it by managing bin storage and contracts.
The following are some of the pricing, delivery and contracting choices available to producers. The best choice for you will depend on your unique crop conditions, location and how much risk you are prepared to take. Making reasonable marketing decisions requires an understanding of the contract’s term, condition, and/or obligations. Before making any grain contracting decisions, it’s recommended that you contact your grain marketing advisor.
Forward Selling Strategies
Forward selling or forward pricing provides an opportunity to capture strong prices during a market increase, before the crop is seeded or harvested. It puts you in a position to capitalize on a high market but can also lead to missing your target price.
Grain Storage as a Strategy
A variety of financial and market variables will influence whether or not you should store grain and for how long. Commodity price fluctuations, basis trends, short and long-term interest rates, and the cost of buying or renting storage facilities should all be taken into account when making storage decisions. When commodity prices are low and markets are anticipated, grain storage can be a viable option. Regardless, your final price should at least pay for the cost of storage.
A futures contract provides the option for sellers to lock in a profit for a future date. With futures, your profits are protected from negative changes in price that could occur after agreeing on a contract. Purchasing futures contracts and options could also allow you to take advantage of a price increase after the grain has been delivered.
5. Actions and Timelines
Identify your target price, the tools you use, triggers in the market, and your responsibility to implement your plan.
The key to a successful grain marketing strategy is to plan ahead. Your strategy, which should be made 12 to 18 months ahead of time, and should include various strategies for pre-seeding, pre-harvest, and post-harvest periods, as well as these six main elements of a successful marketing plan. To make your marketing strategy easier to execute, use tools like a checklist.
Continuously review your strategy regularly and compare to past years.
A well-written grain marketing plan is not designed to achieve the top price on each grain sale. It’s about long-term success. And to get that long-term success, it’s important to continuously evaluate and adapt your plan. Review where you could’ve improved or what your strongest sales points were and develop strategies to tighten up any holes and capitalize on any future opportunities.
We at FarmLink believe every producer deserves this long-term success. A grain marketing plan can be complex and require an abundance of discipline and research, but just like anything in a producer’s life, you can learn to adapt and succeed through anything. We are here to walk you through any questions you may have and to get you started on your journey to reach your financial potential. Your goals become our goals. And it all starts with a well-thought-out grain marketing plan.
Get started on your Grain Marketing Plan with a free trial of GrainFox.