Farmers are not just looking at cutting costs with lower commodity prices, they are examining their management practices as well. A survey by Farm Credit Services interviewed 632 corn producers, 610 soybean producers and 169 wheat farmers in nine states said farm management means the difference between profit and loss.The survey was conducted online in January 2017 with producers who farm 350 acres or more.
The survey showed that one-third of producers are mostly or completely satisfied with their marketing practices and results. More satisfied than dissatisfied producers say they have a written marketing plan, possess a very good understanding of their cost of production and use it in setting an initial price goal.
How producers market their crops
Marketing specialist Ed Usset, said he wasn’t surprised by the results in the survey. One item that stood out was that producers are most satisfied with their marketing efforts are the farmers who know their cost of production. He says they are the farmers who tend to be younger and have larger operations.
That was shown in the survey. The survey showed larger operations and younger producers are more likely to use their cost of production to set a selling price.
Those who are 35 and younger are more likely to use hedge-to-arrive contracts and lock in the carry when they store.
Almost three-quarters of producers say they have a good understanding of their cost of production, although a smaller percentage use it in setting a price target for marketing.
“You have to know your cost of production and work off that. You have to know when you need to be marketing,” says Craig Smith, a Nebraska grain producer who participated in the survey.
Wider use of diverse marketing tools is seen among larger operations (1,000+ acres) and among growers with higher levels of crop insurance – especially 80 percent or higher Revenue Protection (RP) – as part of their risk management.
Producers with 80 percent or more RP for corn are more likely to price prior to harvest than those with lower insurance coverage.
The study showed satisfied producers are more likely to price as soon as they see a profit and to price multiple crop years. They also are more likely to price a quarter or more of their expected crop before planting.
Usset says producers that are dissatisfied with their marketing efforts are those that have less tools available to them and are less likely to know their cost of production. Dissatisfied producers are more likely to say they don’t understand how to use available marketing tools, and more than a third of them wish they had a mentor.
More than 20 percent of dissatisfied producers say they studied marketing in college but don’t understand how to use the various tools in their operation, while 16 percent say they understand futures and options but don’t have confidence using them.
“Those producers are more likely to be shooting from the hip,” says Usset. He says knowing the cost of production is a “precursor to their marketing efforts.”
Usset says the results showed that most producers realize it’s not always about getting the “high price but rather getting the good average price.”
More satisfied producers say they use futures hedges and lock in the carry on stored grain, while dissatisfied producers are more likely to use spot cash sales, cash contracts and put option purchases.
“Some people want to hire someone to do the marketing for them, but I have found that tackling it yourself pays for the rest of your life,” says South Dakota grain producer Phil Hofer who participated in the survey.
One thing that didn’t surprise Usset was how many producers say they don’t have a written marketing plan. According to the survey, seventeen percent have a written marketing plan. Usset said even some of the more sophisticated grain producers don’t have written marketing agreements. However, the successful marketers are the farmers that know their cost of production and what is going on in their operation.
Some interesting information that appeared in the survey results:
On average, producers use four to five marketing tools.
The most popular marketing tool is storage, used by 82 percent at least occasionally; one in five farmers always store.
Cash forward contracts and spot cash sales are used by more than two-thirds of farmers.
Only about a quarter of survey respondents use futures or options.
Almost two-thirds price in small increments; only 5 percent go for the “home run” and price a large portion at a time.