Introduction to Grain Marketing strategy

As a farmer, you must know two things: your cost of production and the price needed to break even. (If you need to know national averages, you can check them here: Cost Of Production)

Selling grain is a volatile business, and having a strategy may help you avoid random decisions that could impede your operation.

Your goal might be to sell your grain before it hits the bins. You need a team to help you with the decision-making. A team you trust, and you know you can make marketing decisions with. Sometimes, with a good team, the times you will be afraid to pull the trigger could be the best marketing decisions you make.

Your Grain Marketing Strategy Team

1) Software to Calculate it All

There are way too many variables a farmer faces every year to try and have an “intuition” about. You need to know your breakeven, and your goal is to sell above neighboring prices.

You can run an excel spreadsheet, formulas, or one built for you, or you can use Grain Basis software. A program where you can place your costs, play with basis, and know exactly where you stand.

Also, using web-based software (no downloads), you won’t need napkins, paper notes, etc., to remember how much grain you sold, at what price, and when.

And how nice would it be to show your loan officer one sheet and say:

“here’s the cost, here’s the break-even, here’s the profit.“

Also, the software does not try to convince you to sell your grain. There is only one possible way to sell your grain you’re looking for – the right time and price.

2) A hedging plan using the Futures Markets.

If you want to hedge against price fluctuations, you should consider working with a broker. Grain Basis software can help you with hedging recommendations. Still, working with an experienced commodity broker who can advise you on the best course of action and help in placing orders correctly is also important. An advantage of using the futures market is that it can potentially save money and lower premiums charged by the local elevator.

3) A Loan Officer

A farmer needs a loan officer to approve loans for equipment, supplies, crops, and land maintenance. A good loan officer will try to match your cash flow needs while making sure you repay your loan.

In our experience, there are three things farmers can do to impress a loan offer:

1) Have a full and accurate picture of your cash flow

2) Be organized with your paperwork (the less paper, the better)

3) Have a complete marketing grain plan.

Building rapport with your loan officer based on your farm operation’s efficient marketing plan to sell grain is important. This will help to establish that you can secure cash flow from your lender or, in simple terms, the money you need to continue your passion for farming.

If you’re looking for a team with experience handling the above, Grain Basis can help. The company has top-of-the-line software and market access, and its staff includes former loan officers who understand your challenges. You can get in touch with them to be guided through every step of your grain marketing: https://grainbasis.com/contact/

Grain Marketing is a Long Term and In-depth Endeavor

One of the advantages of applying an objective, coherent, and emotionless marketing plan based on the cash price is that it will provide you with insight and ideas to optimize your cash sales. You will encounter situations where the basis is positive and some years negative; nevertheless, you will be able to navigate the grain sales landscape with a plan and not “your neighbors” advice.

Talking through different scenarios with your Grain Basis consultant will allow you to have alternatives that you might not have considered or, even more importantly, “compel” you to act due to the volatility that the grain markets can experience. Some Years you may decide to sell all your bushels, and some years you will keep some of the bushels.

Grain prices can only go up or down, but the challenge is how they go up and down. Prices could experience different volatility, ranges, and time spent at a certain price. Those are some of the unknowns and quite often very hard to predict. Your job and the crop marketing consultant’s job is not to guess where the market is heading but what to do if the price reaches specific targets. You will know what to do when conditions are good and when unfavorable.

We believe time and experience applying a solid grain marketing strategy beat all intuitive feelings and neighbors’ prediction talk. You will discover your strongest sales and develop a game plan to maximize future opportunities.

Things you should consider when you get your marketing plan going

1) Current Price is King

In our opinion, prices lead the news. And researchers always have to answer the questions of “why?” as in “why did it go up?” and “why did it go down?”. But there isn’t always a “why.” Prices fluctuate as there is an interaction between buyers and sellers.

The current price should be your only indicator to decide on. It is truly the only objective advice you can get.

Do not fall into the “I don’t understand” scenario of prices. For example, the market has a low supply, and it is going down, or has a high supply and continues to rise. The price is the price. It combines biased opinions, psychology, supply, demand, and weather. We are not artificial intelligence machines that can process all this data and arrive at a predictable outcome.

Your marketing should be based on price risk. The price where you cannot reach breakeven. The price you cannot pay your bills. Your goal is to sell above that price.

Further, you need to consider different scenarios of prices; higher prices and lower prices. Based on these scenarios, you could decide what to do or what not to do. This is where your marketing plan starts.

2) Time is of the essence

After you figure out different price targets, your goal is to set dates for the cash market sales. Stick to a schedule you set; otherwise, as we mentioned above, you may fall into a “gut feeling” decision-making that is not always helpful as a long-term strategy.

In addition to selling, you must consider if anything will go to storage.

3) Consider Outliers

Always be prepared for elements of mother nature such as floods, drought, economical-low prices, higher production costs, and transportation costs. These things you do not control but may jump at you when trying to market grain. Despite all your marketing plans, always consider a contingency plan in case variables like that jump at you.

Old Crop Marketing Strategies

Old crop refers to grains that were harvested in the previous season but have not yet been sold. Farmers can sell directly to the consumer (cash market), processors, or distributors while hedging their crops through the Futures & Options markets. Factors affecting old crops are weather conditions, crop yields, storage availability, and transportation.

Old crop marketing strategies for farmers:

Storage and selling later: Utilize storage for harvested crops and sell later when prices are higher. Advantages include potentially receiving a higher price, but risks include the cost of storage, potential crop loss or degradation, and carrying charges.

Direct marketing: Many farmers sell harvested crops directly to consumers, such as at farmers’ markets or through CSA programs. Benefits include receiving a higher price, building customer relationships, and getting product feedback.

Selling to processors or distributors: Many farmers sell harvested crops to processors or distributors, then sell to retailers or consumers. Advantages include a stable crop market and convenience for crops with short shelf life.

Note: Local elevators or ethanol plants can also be a marketing option for farmers. The most effective strategy will depend on specific crops, market conditions, and the farmer’s resources and preferences.

Pre-harvest Marketing Considerations

Your focus should be on the following:

• It involves the grain sale before they are harvested
• It helps reduce the risk of price fluctuations and over-planting by producers
• Secures a buyer in advance via grain contracts
• Allows farmers to receive better prices for their crops
• Enables harvest plan, storage, and transportation logistics

Post-harvest Marketing Considerations

Your focus should be on the following:

• It takes place after the harvest.
• It gives farmers a chance to evaluate the quality and condition of their crops.
• Farmers can adjust their marketing strategies and pricing accordingly.
• The post-harvest period also provides more opportunities for storage and transportation,
• Allows farmers to take advantage of market conditions and fluctuations.

Futures contracts as Part of Your Marketing Strategy

Farmers must set up their businesses to deal with unpredictable weather, changing market conditions, and different supply and demand levels worldwide. First, farmers can protect grain prices by trading futures on the grain markets. Then, before taking their crops to market, they can “lock in” their profits by selling a futures contract if they think commodities like wheat, corn, and soybeans have reached their targeted profit levels. With this strategy, farmers ensure they will achieve their profit target no matter what happens in the market following the harvest.

Summary:

• In conclusion, a Grain Marketing Strategy is crucial for farmers to succeed in the volatile grain-selling business. To have a strategy, farmers need a team that includes software to calculate costs, a hedging plan using the Futures Market with a commodity broker, and a loan officer.
• A good loan officer is impressed by a complete cash flow picture, organized paperwork, and a comprehensive marketing grain plan. Grain Basis offers a team with experience and top-of-the-line software to help farmers navigate the grain sales landscape.
• A solid grain marketing strategy will provide insight and ideas to optimize cash sales and maximize future opportunities. The current price should be the only indicator to decide as prices fluctuate due to a combination of factors. In our view, the time and experience of a solid grain marketing strategy will beat intuition and neighbors’ predictions.