CREATING A GRAIN MARKETING PLAN
the behaviour of grain markets today seems to bear no resemblance to the markets of 15, or even five years ago. It poses a greater challenge to farmers looking to earn a respectable profit, who don’t intend to become day traders.
Farmers who want to be more profitable have many options when it comes to agronomic technology and many are making the investment necessary to capitalize on these opportunities. But some farmers might be missing out on marketing opportunities that they are less familiar with. Jennifer Kilbourne, Certified Crop Advisor and Cargill Grain Marketing Advisor, says she sees a great deal of untapped potential on farms where an individual’s grain marketing plan isn’t evolving as fast as their production practices are.
“Producers are in tune with the agronomic technology that’s available, but then there’s the marketing side,” said Kilbourne. “Some producers are not as comfortable with marketing, so a little fine tuning of their grain marketing plan can go a long way.”
know your costs
Kilbourne says one of the first things farmers always want to know is when the high in the market will be; but, she says knowing the needs and goals of the farm operation are more practical than knowing when the market will peak. “Nobody has a crystal ball. So instead of trying to figure out the high in the market, I tend to focus more on the risk management needs of individual producers.” For Kilbourne, that starts with the cost of production.
Knowing the cost required to produce each bushel should be the first priority of any marketing plan. Once the breakeven point has been established, a grower can start to consider the margins he or she would like to aim for above that point. Kilbourne says this is a luxury farmers haven’t always been able to afford and there have been years when farmers couldn’t even get their cost of production back from the market.
“Fortunately, in the last two years the grain markets have given several opportunities to sell most field crops in Ontario at a value that exceeds the cost of production,” said Kilbourne. “Anyone who’s been in the business more than two years knows that it isn’t always quite that easy.”
volatility equals opportunity
Market volatility is cursed by many, especially now that funds and speculators are having more of an impact on the market. However, Kilbourne points out that volatility offers opportunity. The key to remaining satisfied with decisions is to be clear about expectations. Kilbourne says farmers need to define for themselves exactly what a ‘win’ looks like long before they start contracting, or they will quickly become frustrated by perceived ‘missed opportunities’.
“If your goal is to achieve a certain return on investment or margin per acre and you reach that goal at the end of the year, and yet you didn’t sell all your corn at seven dollars per bushel, does that mean you won or you lost?” asks Kilbourne. “Like any other business, or part of your life, it’s about setting goals and working toward those goals.”
Those who can manage their expectations can then go on to use a grain marketing plan to advance their business in other ways, explains Kilbourne, because the second thing a marketing plan can do is address cash flow needs. For example, she says, the plan can ensure money is available to pay cash rents, make equipment or mortgage payments, or pay crop input bills in the spring or fall. Perhaps this is less of a concern during periods of low interest rates, but may be more important should interest rates escalate. Kilbourne says farmers can also consider starting a contingency fund for pre-payment opportunities that may present themselves for seed or fertilizer purchases.
Once storage and harvest movement needs are determined, Kilbourne recommends farmers consider their marketing process has at least a 24 month window; about 12 months before harvest and 12 months after. She tells growers that part of risk management is keeping an eye out for opportunities, but that doesn’t mean committing to something you can’t live with.
“It’s part of human nature to learn and grow, and sometimes you may have to push yourself outside your comfort zone,” says Kilbourne, “but different producers have different tolerances.”
Thinking long term helps many farmers feel more comfortable with their plans, which Kilbourne says is the most important goal to have. Though the markets may be more complex, she says using them doesn’t have to be. In fact, Kilbourne puts it quite simply when she says, ‘What lets you sleep at night?,’ is the best question she can ask. •