Another event 2020 will be remembered for, aside from the obvious, will be the 12 months of grain market volatility packed into the final 4 months of the year. What seemed to be a very stale marketing year with limited prospects finished with a bang – and nice pricing opportunities.

This change of fortune was welcomed. But unexpected price change likely also revealed flaws in marketing strategies Sometimes those flaws can become major profit killers.

Now is a good time to evaluate your marketing strategies and identify potential areas for improvement. Identify the seemingly minor details that have a potential to become a major flaw.

Here are some examples of tendencies that can blow up in your face.

You do nothing.

Yes, doing nothing is a marketing strategy; it is the decision not to decide. It’s the oldest and most common marketing strategy. Its popularity is rooted in its ease of implementation and its ability to be applied to 100% of your production, regardless of final yield.

If you stayed long new crop production into harvest on your 2020 crop, then your net average price was probably higher than those who executed sales or options prior to harvest. This marketing strategy was successful this year, but it’s a potential blemish as there are plenty of years when harvest provides the lowest prices of the marketing year. Consider adjusting this strategy by utilizing PUT options prior to harvest, to establish a floor price on 100% of your expected production without a delivery requirement.  

Related:Bull market offers reason to give thanks

You sold substantial portion of your bushels

This is the opposite of the first item. An initial concern is selling too much in poor production years. This was the case this year for many farmers who did not get rain or received winds of unimaginable force.

For others who were smiled upon by mother nature, the strategy provided the comfort of a known floor price on the sold bushels, but eliminated the ability to participate in a rally.

If you sold a substantial portion of your expected production this year, then your net average price was likely lower than your peers. Consider adjusting the strategy by covering the sales with calls; then you have a floor set, and you can benefit from higher prices.

You utilize the contracts offered by end users as a marketing strategy

It’s a common tendency. Many of these contracts are misunderstood and can add risk to a marketing plan. These contracts are designed to “hit your hot button” and the objective of the contracts is for the buyer of the grain to guarantee that you deliver bushels to them.

Related:When it comes to grain marketing, learn from past mistakes

In 2020, many of the “hybrid” contracts with embedded short options resulted in having too much sold at a price below market levels. Take the time to understand all components of the “new age” contracts. Consider the adage “if it sounds too good to be true….”

You base a marketing plan on price history

Price history tends to show seasonal declines into fall harvest. This year is an example of a market that did not follow historic trends. The market price today is based on world supply and demand factors. Commodity Funds have also changed the scope of the market, and lead to more volatility than in years past.

Don’t fall into this trap. Consider the disclaimer, “what has happened in the past is not an accurate predictor of what will happen in the future.”

You won’t use options because of the cost

Cash flow has an impact on this tendency. If you want to reduce your risk of the markets moving lower but remain in the market if it is to go higher, there really is no alternative other than using options.

The initial expense of using options can seem burdensome; however, the alternative, which is not setting floors or eliminating upside potential, can lead to much greater overall costs.

Consider when developing your marketing strategy the first lesson taught in Economics 101: “There is no such thing as a free lunch.” The year 2020 resulted in price change costs far greater than option premium costs.

You use production break-evens to trigger sales before harvest

Many advisors recommend basing your marketing on production break-even levels to trigger sales. The recommendation is usually followed by the statement “you will never go broke taking a profit.” This is very well-meaning advice but is simply impossible to accomplish until after harvest. An operation can have a very firm handle on the cost to produce an acre of corn, but until the yield per acre is known, it is not possible to know the true cost to raise a bushel of corn. Simple math tells you the breakeven price per bushel of 180-bu. per acre corn will be much higher than the breakeven price per bu. of 220-bushel corn, resulting in a much different price trigger level.

Consider that futures prices are independent of operational cost structures and need to be managed separately to eliminate possible marketing strategy blemishes.

You don’t market because you have revenue insurance

Crop insurance is an excellent tool to help a producer manage the risk that they face in production, but not marketing because you have revenue insurance can reveal blemishes in a marketing plan. Increasing yields often mitigate falling prices and have the potential to leave an operation with large quantities of unpriced bushels at low prices in years of above average yields.

Consider the advantages of crop insurance coupled with an options-based program allowing an operation to separate the price and production components of your overall revenue.

The bottom line is that a marketing plan that is both flexible and protects prices is the safest way to manage revenue and respond to market signals. The time is now to find a trusted adviser to help navigate an ever-changing market. If you are not currently using risk-management tools, now is the opportunity to educate yourself. There is no single formula that works for everyone. I encourage producers to seek out a trusted advisor who will instill an understanding of the available tools. Take that information and combine it with consistent marketing habits to develop what works best for your operation.

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