Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

Decisive Marketing

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
December 8, 2000

Early Plans for 2001 Crops

As one year winds down, it's time to start thinking about the next cropping season. Many have already done tillage and applied fertilizer for next year's crop. Early purchase deals for seed, chemicals and other inputs encourage making decisions on what you will plant in 2001. How and when you might market that crop should be a part of these production decisions.

Avoid harvest time sales. The past two years, corn and soybean prices have tended to bottom out at or just before harvest. Avoiding sales during harvest and storing has offered returns both years--if you didn't store too long. Will large supplies, a weak harvest time basis and low prices again be the situation in 2001? If so, storing to avoid price lows and to capture basis improvement along with post-harvest price gains may again be a profitable alternative. For grain that you can't store, avoiding harvest time price lows requires looking for and taking advantage of sales opportunities early in the season.

Pre-harvest sales should be made before July 4th. Seasonal price patterns offer good guides for beginning to make early marketing plans. Prices tend to rally from fall lows into spring. Late spring and early summer rallies often occur, in part, due to planting or production concerns. Once it begins to "look like the crop is made," usually about July 4, prices tend to decline (often sharply) to their fall lows. If you wait past early July to make sales, because you want to see what your crop prospects are, you've probably waited too long! Using crop insurance to manage yield risk and spreading sales out on spring rallies is usually a better strategy. It may not get the market high, but it puts the odds for above average prices in your favor.

What if I'm wrong? That idea often stands in the way of good marketing decisions, especially early in the marketing year. What if you do make sales and then prices go much higher--no one ever wants to miss out on high prices! This is always a real possibility. World grain use is at or near record levels and any production hiccup anywhere could quickly impact prices. While this is a valid concern, there are ways to manage this risk. Making early sales with minimum price contracts or using put options are possible sales strategies that leave the "top side" open. Another strategy might be to purchase call options to offset forward cash contracts or futures hedges. Using these or other combinations of marketing tools can manage the risk of being "wrong" and still allow you to capture early sales opportunities.

Plans need to be flexible and recognize how the production or price situation could change. Also keep in mind how the LDP or market loan fits in with your strategies to deal with low prices. It's early, but not too early to start making plans for 2001 marketing. --Melvin


University of Missouri ExtensionDecisive Marketing - December 8, 2000
http://outreach.missouri.edu/agconnection/DCT/DM001208.html -- Revised: April 20, 2004
breesm@missouri.edu