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Corn+Soybean Digest

Turning Down Profit

Too often, attitude and action limit price potential Howls over low prices reverberated across the Corn Belt as farmers harvested bumper crops of corn and soybeans this fall. A failure for a farm program received most of the blame. Calls for price parity were renewed.

Among all the hubbub, it seems the facts of the market were, once again, quietly ignored. Actually, farmers could have locked in corn at $2.72 and soybeans at just a nickel under $6 on the Chicago Board of Trade (CBOT) earlier this year.

In fact, since 1985 there have only been two years that farmers couldn't lock in at least $2.70 for corn and only three years they couldn't lock in $6 or more for beans. There have already been opportunities to lock in those prices for the 2001 crop, marketing advisors point out.

It isn't that the markets haven't offered profitable price levels. They just haven't been there when farmers most want to sell their grain.

"You aren't going to hit the high prices if you sell for cash in October or February," says Plattsmouth, NE, farmer and marketing consultant Roy Smith. "Most producers procrastinate until they have to sell and then they sell at the bottom. That's such a dominant personality type in ag that they all do it at the same time, which makes the price even worse."

"You can't hope the market higher," adds Luke Hickey, Advance Trading, Bloomington, IL. "The market has given us opportunities for profit. But you have to have a marketing plan you're comfortable with and execute it to take advantage of the opportunities.

"Emotions stop most people from taking action," he adds. "By the time they decide to sell, the market is way ahead of them, already trading on other information."

Most farmers just aren't comfortable dealing with finances, according to Smith. "They tolerate it to have the opportunity to run tractors and combines. They're motivated by big equipment and big crops."

"When we ask clients what their marketing goal is, it tends to be `as much as I can get.' Trying to make that work is like pushing a log chain," says Moe Russell, Russell Consulting Group, a risk management consulting firm in Panora, IA. "Farming, ultimately, isn't about yield, it's about profit. You need to identify a profitability point and create a plan to reach it."

You need to think about your business the way other agricultural companies think about theirs, according to Russell. "ConAgra has a written goal to earn a 20% return on its equity," he says. "It isn't content to just be in the food business. Likewise, you can't be content to just grow crops."

It takes a different mindset to be a good marketer than it does to be a good producer, says Smith.

"Farmers have a lot of different sources they rely on to know what are the best hybrids or varieties to plant and the management practices that work best for their farms," he says. "The only variable you can't control is rain. But with marketing, you have to make decisions based on less-than-complete knowledge. If you do sell at a profitable price but later the market goes up, it looks like you made the wrong decision."

Smith believes that farmers rely too much on market outlook predictions. "Outlook is a very fleeting thing."

The spring of 2000 proves the point. The "outlook" was for a major drought across the Corn Belt. That prediction convinced many farmers to wait for the higher prices that a drought would bring, rather than lock in profitable levels the CBOT offered at the time.

The early spring outlook was washed away with timely rains across most of the Corn Belt. The more it rained, the more corn and soybean prices dropped.

"The mindset you need to have is to sell when the market hits your price level and not worry about outlook," Smith says.

Rather than try to outguess the market, Smith encourages farmers to put together marketing plans based on seasonal price trends. "There are certain times of the year you're likely to hit good prices and others you're not," he says. "You need to work with the probabilities, pick a pattern and have the self-discipline to follow it."

Smith admits that he's wired a little differently than most farmers. "I like the financial side of the business. Tractors and equipment are a distraction to me," he says. "I'm not fond of fieldwork. When I tell farmers that at my marketing seminars, the room gets real quiet."

But Smith is convinced that most farmers can be good marketers, whether they like it or not. "There are very few farmers who aren't able to sit down with a seasonal-price-trend chart and figure out a marketing plan that will meet their cash flow needs at a risk level they are comfortable with," he says.

If you've decided you don't want to market your grain yourself, there are plenty of services willing to help you. "There are many opportunities available," says Russell, "everything from free marketing services on the Internet, to companies like us, to companies that take power-of-attorney and sell all your grain for you. If you aren't able to market your grain successfully yourself, you need to find someone who you want to work with to get it done."

You better get marketing figured out quickly, warns Russell. "If you don't get it figured out, you likely won't survive," he says. "We've got one client who priced two-thirds of their crop at profitable levels. With LDP and AMTA payments tacked on, they're already going to gross $370 per acre and still have one-third of their crop left to sell."

Those profits provide purchasing power. Russell's client intends to buy two more farms this year. They have resources to do that because they took their profit when the market offered it, rather than turning it down.

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