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Managing your marketing decisions and volatility

Recent grain price rally is a welcomed care package for your farm’s balance sheets.

The last two months are a reminder of the uncertainty that must be managed in your marketing plan. The price levels achieved this fall are a welcomed “care” package for balance sheets.

When we consider the surprises USDA reports offer, the unpredictable weather impacts on crops in both hemispheres, and the uncertainty of world politics, marketing can start to seem like an insurmountable task. 

Fear of grain shortages have led to record long positions. All of this is leading to the high prices that will eventually cure high prices. World producers have repeatedly proven the ability to over produce the world’s needs. Everyone knows that the bullish market of today will become the bearish markets of the future.

In the interim, producers need to develop a disciplined and defendable plan that combines marketing hope with marketing control. 

Marketing is a critical aspect to financial success in farming but is often left to hope and chance. In-depth market analysis is unlikely to predict future market direction; it can paralyze decision-making. Hesitation at today’s prices can lead to missed opportunities, while aggressive marketing can result in selling too early at too low of a price.

Both can put an operation at a competitive disadvantage.

Control your decisions

For your old crop production, protect the profitability the market offers. Utilize the risk management tools at your disposal for protecting margins. Incorporate options with your previous marketing habits to merge flexibility into a solid and defendable marketing plan.

Position CALL options to control your decision to sell grain by providing opportunity to gain if prices continue to climb higher.  

Today’s volatility offers opportunity to protect profitability on your planned production for 2021. As weather remains questionable in South America and World grain prices soar, the November 2021 soybeans are competing with December 2021 corn prices to deliver needed acres. Avoid letting this uncertainty stall your marketing. Prices will go higher and lower from the levels of today.

Controlled marketing decisions incorporate PUT options to establish floor prices to protect the current value of the grain you have not yet produced. 

Plan to manage marketing decisions

When the marketing decision has established control of the market, the next step involves having a plan to manage that decision as price trends change. The best managers adjust to changing opportunities. Prices will do what they do and often without warning.

Often, when confronted with market information that contradicts price expectations, the impulse is to reject or reconcile the information differences. Resist this inclination. A flexible plan utilizes options to address changing price and yield trends and will manage the emotions of denial, positioning your operation to capitalize on opportunities.

Why welcome market volatility?

An operation that has control of the market and a plan of action based on higher or lower market trends is positioned to benefit from market volatility. Embrace it as an opportunity. Anticipate and cheer for price movements both higher and lower, as either can offer good fortune in a quality marketing plan. Rising price can offer opportunity to build your balance sheets. Falling prices may offer a competitive advantage.

Successful marketing decisions involve a three-tier approach: get control of the marketing decision, manage price trends that will affect the decision, and embrace the inevitable volatility. Follow the outline to develop and implement a strategy that is defendable to your lender, business partner, spouse, etc. regardless of market direction. Strive to eliminate emotions and stress from ever changing markets, allowing more time to focus on production.

If you are not currently using price risk-management tools, now is the time to educate yourself. Sit down with an adviser or find a risk-management consultant with whom you are comfortable.

Contact Advance Trading at (800) 664-2321 or go to www.advance-trading.com
Information provided may include opinions of the author and is subject to the following disclosures:
The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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