Swathers, combines and grain carts have been pulled out of their hibernation. There is a spattering of combines chewing up early crops already. Harvest is just getting underway in parts of the prairies, and already grain marketing companies and media are estimating the cereal and oilseed harvest will be big. Having a thought-out marketing plan is one of the first steps in establishing a profitable farm business. Technology has allowed farmers to make marketing decisions on the go. You don’t have to call the local elevator as they now post their bids, and there are services that can get a price up to 500 miles away. Grain can can be sold online, or make hedging moves directly from a phone or tablet. But what goes into making that “sell” decision?
There are several times during the year when farmers need a large influx of cash to cover expenses and debt. It boils down to knowing what is needed for cash, and when it is needed. During those parts of the year, managing the grain marketing plan to execute sales and receive cash will keep one alive. This means setting a goal not only for the price of your grain, but also the point in time when you want to receive that cash from the sale. Take into account the realities of the industry such as rail movement in the winter, or contracts that drag on. If you can preplan cash flow needs, you will not be making reactive decisions. You will be making disciplined decisions that bring in revenue.
Striking a balance between selling some grain at harvest and storing the rest is highly personalized. Will you have excess storage or fall short? Are you wanting to wait for higher prices in the future and using storage as a grain marketing strategy? What happens if the price does not rally? Will grain storage increase the speed of harvest by decreasing the time spent hauling and unloading grain?
Have you considered your costs for storing grain? There are storage facility costs such as depreciation, return on investment, maintenance, and insurance. Will there be extra drying, or aeration required? What are your costs associated with moving the grain in and out of storage (labour, equipment, more craks/splits)? Some hidden costs are the interest cost of having money tied up in stored grain inventory. For example, you have a loan to pay that is accumulating interest, however, you aren’t satisfied with the grain price or can’t move the grain when you want to.
Knowing cost of production is a useful base for forming a marketing plan. Can you turn a profit at current prices? What is the lowest price you can sell at and maintain profitability?
Cost of production is taking into account your entire crop inputs as well as all other farm costs that go into the business of farming (fuel, depreciation, wages, land rent, power, administration, etc.). Outlining the cost of production in the spring and then updating at harvest, when realistic yield estimates and inputs are understood, is important. Calculating and understanding your full cost of production helps take the emotion out of making the difficult “sell” decision.
Hindsight is 20/20, and there will always be the fluctuation in grain markets throughout the growing season. You may not always sell all of your grain at the market high, but realize that making incremental sales and building the best average price for your production over time equates to money in the bank.
Seasonality of Grain Marketing
This is associated to the growing season and is usually based on supply and demand. During old crop months, when supply is typically lower, grain has a tendency to be priced higher than the farther out new-crop trading months. When new crop is harvested, there is once again a higher level of supply. This is why many of the grain markets tend to reflect their lowest seasonal prices during the new crop trading month.
Know your marketing tools that are available to you, and what tools you should be using. This will help you achieve your price targets and sales deadlines.