August 1, 2011
Lenders always encourage producers to have a marketing plan, and most producers know they need one. But in years like this, even some of the best mapped out marketing plans have the potential for leading to a road of disappointment.
For over 30 years I think I’ve seen every conceivable plan invented by man. One of the most logical is a scale-up selling program after the market rallies above your breakeven price.
For example, if 12 months ago you calculated your breakeven at $4.20/bu. (that was logical at that time), then you start with a scale-up selling plan at $4.50 and sell more in higher increments until you get to $5.50. Works well if you have a crop.
But think how this plan has worked if a producer even did it on 50% and the producer lived in Ohio where now 50% of his normal crop may turn out to be 110% and his average price is $2 below the current market?
At the other extreme, consider the Nebraska farmer who might well have 265-bu. corn and used that same scale-up selling program on 50% of a normal crop, which might have equated to 100 bu./acre. He now has 165 bu. to sell at a much higher price.
Same plan, extremely different results. Plans are always much easier with 20/20 hindsight.
I’ve said this many times in this column and it’s something we should never forget: What worked last year has little or nothing to do with what will work this year.
While we would like to have a simple plan for scale-up selling above breakeven, years like this are a good example of why “simple” doesn’t always work well. For farmers we’ve worked with over the years we always want a plan A and a plan B. Basically, plan A is followed until circumstances become abnormal, and then you have to go to plan B. It’s rare that you can stick with plan A throughout the entire marketing year.
For producers in the eastern Corn Belt with a poor crop, plan B is going to hinge largely on insurance payments and hoping they have enough grain to fulfill forward cash contracts.
For producers with big crops this year, the decision-making should be very simple. The market is offering producers with a crop the most profitable year they’ve probably ever had in their life. Take advantage of it. For producers in that situation, it’s time to concentrate on the 2012 and 2013 crops.
Just keep another fact in mind: Market prices are good or bad based on a comparison. Don’t compare 2012 and 2013 prices to 2010 and 2011 prices. Markets will not likely be able to sustain these levels. Compare using a three-year average instead of the absolute top of the market.
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