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Grain marketing 101

FP Next – Deep Dive: Here are some grain marketing secrets and strategies from Farm Futures market analyst Jacqueline Holland.

6 Min Read
Combine in field
TOP PRICE: You worked hard all season to grow your crop, so you don’t want to waste that production by selling at the absolute bottom price. Farm Futures market analyst Jacqueline Holland discusses secrets and strategies to help you develop a winning grain marketing plan. Curt Arens

How do I get the best price for my grain year in and year out? What is the difference between cash sales, storage, forward-contracting, hedging and options? And do women make better grain marketers than men?

Farmers are usually very good at producing crops, but profit often comes in the marketing of that grain. That’s why Dakota Farmer editor Sarah McNaughton and Nebraska Farmer editor Curt Arens chose Farm Futures market analyst Jacqueline Holland as the first Deep Dive guest for their new Farm Progress podcast, FP Next.

Burning questions

In this episode, McNaughton and Arens quizzed Holland on those burning questions. Gleaned directly from the podcast transcript, which can be heard here, here are some of the questions they asked and Holland’s answers, delving into what you need to know about “Grain marketing 101”:

Explain some of the basic keys to successful grain marketing for us. Last Thanksgiving, when I was back home on my parents’ dairy farm, a 300-cow dairy in northwestern Illinois, I was helping with chores and bookwork, and I had this really big revelation. The most important factor about marketing that gets left out of many discussions is that it is about timing.

Timing is so important for production agriculture. The timing of when we get our bills doesn’t always match up with the timing of when we receive our paycheck. For example, row crop farmers have to pay for all of their inputs months before the crop is harvested. For cattle producers, they are paying for feed on a monthly basis, or even more frequently.

You have these time lapses, biological lags, when your operation is more exposed to price risks. You know, there’s always a risk that when you decide to plant more corn or soybean acres one year, that by the time you harvest them, the prices for those crops will be lower than when you set out to plant those crops. So, marketing, in a lot of these tools that we talk about, is a way to reduce those price gaps, so that you can lock in your profits ahead of time.

For producers, what are some of the tools they have to potentially lock in those profits?

  • Forward contracts. That’s usually a private negotiation between a buyer and seller. The buyer can be anyone who wants grain for your livestock, or it can be an elevator, a processor, a river export terminal, ethanol plants, a feedlot. It’s a private negotiation with that buyer to deliver that grain at a time in the future at a price that you set before that delivery is made. That’s a basic way to reduce your risk time and price risk.

  • Cash delivery. This is just selling your grain straight off the combine or directly out of the storage bin to a local buyer at whatever the cash market price is offering at the time.

  • Hedging. It’s kind of a double accounting process, if you will, where you sell your physical crop and then you buy a futures contracts of a similar size to that sale. And then you sell that futures contract later, and hopefully at a higher price so that you can take advantage of some of the price movements down the road. Usually when farmers harvest their crops in the fall, kind of thinking back to Economics 101, when you have high levels of supply, which is usually at harvesttime, you tend to see prices go lower. So, hedging offers an option to really capitalize on those market opportunities in the future.

  • Storage. This goes all the way back to biblical times. That is, when you wait to sell your grain, you can either store it on-farm or with a commercial storage facility and wait to sell it when prices go higher. As an example, corn growers might be holding on to corn bushels right now, hoping for a good report of corn exports next summer.

  • Options. It’s similar to a futures contract where you have a little bit more flexibility on capturing price movement. However, there’s a little bit of cost. This tool will take the highs out of the highs and lows off the lows of price movement. But it still gives you a steady, predictable price.

  • Others. Farmers can use any combination of these methods. There are other products that private companies offer, that elevators offer, but essentially, they’re all variations on the same premise.

There have been some studies out there that suggest that women may make better grain marketers than men. What do your experiences tell you about this? I can’t speak to the to the exact data, but when I was doing my master’s thesis, I surveyed large farm owners. In the data set that I analyzed, we found that women tend to be much more conscious of financial operational performance than men, and they are much more willing to forego relationships with specific brands or specific retailers if performance isn’t up to the farmer’s standards.

A lot of women have been involved in farm business management in these operations for a long time and it’s a really great quality that women tend to take a longer-term approach to strategic decision-making. Women tend to be very aware of when bills need to be paid, how much is needed and when they are due. They’re planning not just for the next price cycle, but for generations, and women tend to have a more risk-averse profile.

Where do you start and how do farmers develop the best marketing strategy for their own operation? The easy blanket statement is that you have to figure out your farm breakeven. But I think it’s more intricate than that. First, you have to look at your own operational needs and at the timing of your cash inflows versus when expenses are incurred and when they are due. You have to be able to be comfortable doing unit conversions, so you can home in on those managerial targets that’ll give you the breakevens that you want to find.

Then you want to look if there are variances when you’re experiencing these cash inflows and outflows. Do you want those to match up with certain cycles? In the grain market cycle, you have to account for what kind of cash reserves you want to have on hand. What are your goals on paying for bills, i.e. common bills versus equipment payments versus real estate loans? Those are all due at different times, so they require different revenue sources.

Finally, the crop insurance that USDA Risk Management Agency offers does an incredible job of helping to offset serious systemic price risks to farmers. If you can get part of your crop even partially covered with good crop insurance, that’s actually one of the best first steps in marketing. From there, you can kind of determine how much of your crop you want to protect and what marketing tools work best for your farm.

To learn more about the next grain pricing opportunities and the resources that experts like Holland use to develop market strategies, be sure to catch the entire FP Next Deep Dive episode.

About the Author(s)

Curt Arens

Editor, Nebraska Farmer

Curt Arens began writing about Nebraska’s farm families when he was in high school. Before joining Farm Progress as a field editor in April 2010, he had worked as a freelance farm writer for 27 years, first for newspapers and then for farm magazines, including Nebraska Farmer.

His real full-time career, however, during that same period was farming his family’s fourth generation land in northeast Nebraska. He also operated his Christmas tree farm and grew black oil sunflowers for wild birdseed. Curt continues to raise corn, soybeans and alfalfa and runs a cow-calf herd.

Curt and his wife Donna have four children, Lauren, Taylor, Zachary and Benjamin. They are active in their church and St. Rose School in Crofton, where Donna teaches and their children attend classes.

Previously, the 1986 University of Nebraska animal science graduate wrote a weekly rural life column, developed a farm radio program and wrote books about farm direct marketing and farmers markets. He received media honors from the Nebraska Forest Service, Center for Rural Affairs and Northeast Nebraska Experimental Farm Association.

He wrote about the spiritual side of farming in his 2008 book, “Down to Earth: Celebrating a Blessed Life on the Land,” garnering a Catholic Press Association award.

Sarah McNaughton

Editor, Dakota Farmer, Farm Progress

Sarah McNaughton of Bismarck, N.D., has been editor of Dakota Farmer since 2021. Before working at Farm Progress, she was an NDSU 4-H Extension agent in Cass County, N.D. Prior to that, she was a farm and ranch reporter at KFGO Radio in Fargo.

McNaughton is a graduate of North Dakota State University, with a bachelor’s degree in ag communications and a master’s in Extension education and youth development.

She is involved in agriculture in both her professional and personal life, as a member of North Dakota Agri-Women, Agriculture Communicators Network Sigma Alpha Professional Agriculture Sorority Alumni and Professional Women in Agri-business. As a life-long 4-H’er, she is a regular volunteer for North Dakota 4-H programs and events.

In her free time, she is an avid backpacker and hiker, and can be found most summer weekends at rodeos around the Midwest.

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