What is your exit plan? I’m asking this of you, the producer, who placed newly harvested and unpriced corn and soybeans into storage last fall. What price are you waiting for before selling grain held in storage?
I’m not asking why you chose to store grain – those reasons are many. Maybe you stored grain last fall because that’s what you always do. Maybe you stored grain because a market advisor recommended it. Maybe you stored it to defer taxes to 2011.
Whatever your reason, holding unpriced grain was a very good choice. From early October to the second week in January, cash corn prices in Minnesota are up over $1.70/bu. Cash soybean prices are $3.30/bu. higher. These figures are five times greater than the average price rise from early October to the second week of January. Do you have fond memories of the 2007-2008 bull market? Price increases this year are even greater. In fact, my records show these to be the greatest price rises ever for the three months following harvest. Yes, you made a very wise choice.
Now back to my original question: What is your exit plan?
I enjoy asking this question because it makes so many farmers uncomfortable. They look down at the ground. They shuffle their feet or squirm in their seat. They might give me a knowing smirk because they’re making lots of money, and they never had a plan.
After traveling the Corn Belt for 15 years, I think I know the most common exit plan in use today. What price are you waiting for? The answer is, “I’m waiting for 25¢more.” If the cash price rises another 25¢, the mantra is repeated, “I’m waiting for 25¢more.” If the cash price declines 25¢, the answer is “I’m waiting for the chance to get that 25¢back.” The “I’m waiting for…” approach is popular – and it has fumbled more opportunities than the last-place football team.
Let me offer a few suggestions for developing your own exit plan:
- If you are reluctant to use price objectives, try using decision dates. The March-June period is often a good time to make cash corn and soybean sales. Commit yourself to selling a portion of your crop every week, starting in mid-March and continuing through June.
- Is the trend your friend? Use your favorite technical tool like a moving average to follow the trend higher, with a commitment to start selling cash grain once the trend turns lower.
- Try a trailing stop – a selling price, for example, 30¢lower than the current cash price. If prices drop 30¢below the most recent high price, it’s time to start selling. Then again, if price continues to rise, your “start selling” price also rises.
- Commit to finish cash sales by the end of June and stay true to the 11th commandment of grain marketing; “Thou shall not hold unpriced corn or soybeans in the bin beyond July 1.” Yes, I know the sinners made money last year. But breaking this commandment will break your heart in three out of four years.
For holders of corn and soybeans, the market has rewarded you in a handsome way over the last four months. But you need a way out. Like a great party on New Year’s Eve, there is a fine line between enjoying the evening and staying an hour too long. So I will ask you one more time: What is your exit plan?