In my previous two columns, I examined price targets and decision dates in grain marketing. These topics set the table for a discussion of how to write a pre-harvest marketing plan.

A marketing plan based solely on price targets is incomplete. Price targets are important and necessary, but prices may not reach your lofty targets. The risk is simple – you may pass on some good pricing opportunities because the market price was not high enough.

A marketing plan based solely on decision dates is also incomplete. Decision dates are often clustered in the spring, when pricing opportunities tend to be better. Decision dates create a different risk. You may pass on early opportunities at a good price because the time was not right.

An effective pre-harvest marketing plan must include both elements. Below is my 2020 pre-harvest marketing plan for corn. Let me explain how I used both price targets and decision dates to build this plan.

To build a plan, start by selecting a minimum price objective. This is your first and lowest price target – a price under which you will NOT price grain. Production costs help us establish a minimum price objective. For many producers in the Upper Midwest, cash corn production costs of $3.60-3.80/bu. are common. Add a basis of 40 cents/bu. and you have a December corn futures equivalent of $4.00-4.20/bu. Does it make sense to price grain below your break-even cost of production?

Scale up price targets

With a minimum in place, scale up your price targets towards a maximum price objective. That maximum should be aggressive and realistic. My maximum objective is $5.65/bu. Dec’20 futures. This is about 35% higher than my $4.15/bu. minimum price objective. That may look too high, but it is realistic. Since 1990, we have experienced price rallies of that magnitude or more in roughly 1 of 10 years.

My plan to price 75,000 bushels is divided into six increments of 10-15,000 bushels each. Is six incremental steps the perfect number? I don’t know. In my opinion, however, a plan with just two or three steps puts too much emphasis on each sale. A plan with more than 10 steps is making the job more difficult than it needs to be.

With your price targets set, it is time to add decision dates. A decision date (See Dec. 2019 issue Farm Futures) is a date when you commit to pricing grain, even if your price target is not met, as long as the price is above your minimum.

The first step is set at my minimum price objective – it does not have a date because I will not price grain below production costs. Each subsequent price target is accompanied by a decision date. Seasonal price patterns point to spring as the best time to price grain, so all decision dates are in April, May or June.

Which element takes priority – the price target or the decision date? The answer is whichever comes first. For example, if a big rally happens and you reach your third price target ($4.75 Dec’20 futures) in mid-March, price new crop corn and ignore the May 7 date. On the other hand, what if there was no rally - May 7 arrives and Dec’20 corn futures are at $4.28/bu. In this case, price new crop corn because the pricing opportunity is higher than your $4.15/bu. minimum.

This pre-harvest marketing plan is not a plan to sell the high, and it will not eliminate the anxiety that comes with pricing decisions. It is an attempt to find a good average price in marketing.

Edward Usset is a Grain Market Economist at the University of Minnesota, and author of the book “Grain Marketing is Simple (it’s just not easy).” You can reach him at [email protected].

2020 Pre-Harvest Marketing Plan for Corn

With an expected production of 100,000 bushels in 2020, buy crop insurance to protect my production risk and price 75% of my anticipated corn crop (per APH yield) by late June.

Plan starts on January 1, 2020. Earlier sales may be made at a 40 cent premium and would be limited to 30,000 bushels.

Ignore decision dates and make no sale if prices are lower than $3.75 local cash price/$4.25 December futures.

Exit all options positions by mid-September 2020.

Edward Usset is a Grain Market Economist at the University of Minnesota, and author of the book “Grain Marketing is Simple (it’s just not easy).” You can reach him at [email protected].

Read the other articles in the Advanced Marketing Class series: