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2 ways to navigate volatile markets

Getty/iStockphoto downward market trend
Markets inevitably have pullbacks. Handle that volatility with less emotion.

The corn, bean and wheat markets have all had big rallies over the last several weeks. As of this writing wheat was up over $2 for the month alone, while corn and beans had a quiet month after several weeks of rallying.

On Wednesday, May 18 we saw the big 3 (corn, beans and wheat) take it on the chin. Many producers were no doubt irritated. These markets, which have consistently rallied for months, would see losses of 20-50 cents on the day.

It is indeed inevitable these markets will have setbacks. All healthy markets need a good setback every now and then.

As farmers whose livelihood depends on how these markets perform, we don’t often handle volatile markets very well. If we’re honest, the emotions of marketing our grain can be overwhelming as we tackle, greed, FOMO (fear of missing out), and simply the challenge of being successful.

I have a couple of solid ideas to help us navigate volatility in a healthier manner, by removing as much of the emotion of marketing as possible.

Focus on expected margins

Many times, my experience has been producers struggle to make sales whether prices are high or low. When prices plummet, sales are just as likely as when they’re high. While we’d all like to sell as a market rallies, there are certainly more sales made on big down days than we’d all care to admit.

So, how does a person keep from making those same mistakes when selling the crops they grow? First of all, keeping strict tabs on costs of production can help simplify marketing decisions. If we use those costs along with reasonable production estimates, we can identify the prices that will allow us to ‘break even’ or cover our expenses as well as what we’re paying ourselves.

In a year like 2022, IF a person feels good about production potential, there’s no doubt prices like $7.40 Dec corn or $15 Nov beans are well above typical break-even prices. In this situation, I’d recommend producers continue factoring more income (salary/cost-of-living) to keep their break-evens competitive and current with the market.

Benchmark profitability

The second way I believe we can improve our marketing during volatile times works in tandem with the first idea. If we can benchmark where our farm’s profitability is today versus where we’ve been in previous years or even-say, three months prior, it can bring perspective to our current situation. I’m a big believer in perspective factoring into a good marketing plan.

For instance, if your farm averaged $150/acre net profits over the last 5 years, how does your current situation compare, even at APH yields? I’ll share an example I worked through this past week. For a person spending $1,050 per acre on a corn crop in central Illinois who has an APH of 210 bushels/acre, break-even is right at $5 for fall cash corn. With this producer’s local fall bid at $7.32, net profit per acre was right at $450 IF the producer raised their 210 APH.

Hey, I realize we don’t know what production might be this early in the growing season. I also realize there are a ton of tools available for producers to lock in income without making cash sales on all of the risk they are managing.

The bottom line in a year like 2022 is we have major opportunity in front of us. If we’re honest, no one knows what prices will do over the next few weeks/months. What we all know, however, is that we can lock in incredible income if we protect the price levels we’re currently seeing.   

I wish you much success for this 2022 growing season that lies ahead!      

Feel free to reach out to me or anyone on the AgMarket team. We’d love to hear from you.

Reach Matt Bennett at 815-665-0462 or [email protected].

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