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Corn+Soybean Digest

Survey: Farmers Sold On Grain Marketing Alternatives

Farmers are more savvy selling grain today than they were a decade ago, according to a Purdue University survey.

The survey of about 50 large-scale producers attending Purdue's 2005 Top Farmer Crop Workshop found that farmers not only are utilizing a wider variety of grain marketing practices than a similar survey group in 1994, but also using those sales techniques for more of their production.

Purdue agricultural economists George Patrick and Corinne Alexander conducted the 2005 survey.

Farmers asked about their marketing preferences in 2005 used a variety of price enhancement and price protection techniques, Patrick said. Price enhancement involves selling grain when market prices are on the high side. Conversely, price protection techniques attempt to shield a farmer from possible low prices.

"Farmers in general are more concerned about their marketing as time goes on, and they've learned more about these different marketing techniques, so that they feel more comfortable using them," Patrick says.

"What we have found in our survey is that farmers are tending to make quite a bit more use of some of the techniques that are available, regardless of whether farmers consider it price enhancement or price protection. They can go with cash or spot markets, cash forward contracts, futures hedges, take a position with options, do deferred pricing or look at basis contracts."

More than 95% of farmers surveyed in 1994 sold grain on the spot market or through cash forward contracts, where they enter into an agreement with a buyer on the future delivery and price of their grain.

Those two marketing techniques were still popular in 2005, Patrick says. Less popular in 1994, but gaining acceptance and use by 2005, were other futures-related sales methods. The percentage of farmers in both surveys who said they used alternative marketing techniques for price enhancement and/or price protection purposes included:

· Futures (price enhancement) – 61.4% in '94; 86.4% in '05.

· Futures hedge (price protection) – 64.6% in '94; 86% in '05.

· Options (price enhancement) – 73.5% in '94; 84.1% in '05.

· Options (price protection) – 69.4% in '94; 88.4% in '05.

· Deferred pricing (price enhancement) – 73.5% in '94; 77.3% in '05.

· Deferred pricing (price protection) ­– 73.5% in '94; 78.6% in '05.

· Basis contract (price enhancement) – 73.5% in '94; 93.2% in '05.

· Basis contract (price protection) – 70.8% in '94; 92.9% in '05.

While farmers in the 2005 survey said they are employing more marketing techniques, their understanding of those methods also has increased. "Another part of the questionnaire asked them whether they wanted additional information about some of the marketing techniques, and there was a small percentage who felt they needed additional information," Patrick says.

One reason the 2005 survey group might not have wanted more information could be tied to their use of marketing advisory services and consultants. The survey indicated that 60% of those surveyed used market advisor services or marketing consultants, compared to only 27% in the 1994 survey.

"Another area that we looked at in our survey was the objectives that farmers have in their marketing programs," Patrick says. "One of the changes we noticed was that in the 1990s, farmers gave quite a bit of weight to managing their income for tax purposes as a factor in their marketing programs. In 2005 when we interviewed them, the importance of that had dropped significantly.

"Even though I work a lot in the agricultural tax area I find that to be encouraging, because farmers do need to separate their marketing decisions from the tax considerations."

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