Producers looking to successfully market their grain should concentrate on what they can control and be prepared to sell at any time, according to Donna Archer of Maizeing Acres Incorporated.
Archer and her husband, Pete, have a 1,500 cash crop farm and own three grain elevators in eastern Ontario. She presented 10 tips for grain marketing at the recent Grey-Bruce Farmer’s Week Crops Day.
Why it matters: Planning ahead means producers can make a better profit from their crops.
No. 1: Don’t worry about what you can’t control
No one can control the weather, so worrying about it is a wasted effort, but farmers can make sure the equipment is ready for when it clears up, says Archer.
No. 2: Have a plan
While farmers can’t control the politics that drives prices, they can have a merchandising plan. Even having a plan doesn’t guarantee a profit, so Archer advised that producers be prepared to sell any time the markets are up.
“You just can’t use the strategies your parents and grandparents used — yields per acre are way higher and we’re farming more acres,” Archer said.
There’s also a lot more volatility in prices, which is good for both buyers and sellers, she said.
No. 3: Have good numbers
“Know your numbers,” she said pointing to the third habit. “You want to standardize your numbers to per acre because you don’t want to think about price, but about profit.”
She outlined five steps she uses with her customers:
- Estimate how much production you want to sell.
- Figure out the production cost per acre including land preparation, fertilizer, seed, spray application, rent (or a rent equivalent if land is owned), planting, harvesting, trucking, drying and crop insurance.
- Set a profit goal per acre, or how much money they want to make.
- Calculate a target price, which is the cost per acre added to the profit goal per acre divided by the yield per acre.
- Assess the goal and take action, being careful to make sure it is achievable and that not too much profit is being left on the table.
“You need to assess whether there are costs that you could be cutting or you need to grow more,” Archer said. “You need to grow as much as you can as economically as you can.”
She also said producers need to compare the price they calculate with what’s being offered in the marketplace.
No. 4: Use orders
The fourth habit she recommends is to use target orders, also called sell orders and standing orders, which are the threshold price at which producers want to sell. Once the market prices hit that mark, the elevator will sell the grain.
She suggested using this method because it’s free, strategic and flexible.
Archer emphasized the importance of setting the target order early, before planting, because it gives more time for the target to be reached.
No. 5: Make incremental sales
Producers can sell their crop in 50 or 100 tonne parcels in four or five sales per year. The advantage is that if producers sell one parcel and the price goes up, there’s more to sell. Once there’s nothing left to sell, they can start selling next year’s crop.
No. 6: Forward contracting
“About 70 per cent of the time your best pricing opportunities come prior to harvest,” she said, adding that many producers are afraid of forward contracting because they may not be able to fulfill the contract or the price will go higher than indicated in the contract.
In a five-year comparison between customers who forward contracted and those who sold at harvest, Archer said that the forward contractors made 46 cents more a bushel for corn, 90 cents a bushel more for soybeans and 58 cents a bushel more for wheat.
“There’s a huge difference in what you can make,” she said, adding that she crunched the numbers for her customers and arrived at a $202,000 advantage for forward contractors over 10 years, using a five per cent return.
“If you farm over 50 years, that’s a million bucks — you just won the lottery by making a few simple changes in your marketing strategy,” Archer said.
No. 7: Managing seasonal tendencies
There are certain times of the year when the markets will behave in a predictable way, and Archer has an ‘always, never’ list that she uses with her customers to take advantage of the best times of year for selling:
- Always have cost-of-production-based targets for corn and beans
- Always look at selling wheat one to two years out
- Never put corn or wheat in commercial storage
- Never wait past July 4 to forward sell or finish old crop (drop-off after spring rally)
- Never sell corn or beans in late September or early October
- Always look for the 75 cent ‘dead cat bounce’ three weeks after the harvest low price. In 2019, it was on Sept. 20, and for the next three weeks, prices recovered by 75 cents a bushel.
No. 8: Take out production insurance
Production insurance can be used both in reactionary way when crops fail, and in a proactive way to mitigate revenue risk.
“If a crop guarantee for insurance purposes is at 30 bushels of soybeans an acre, you can forward contract for 30 bushels an acre when you know there are good prices available to you,” she said.
No. 9: Know the buyer
Not all buyers are the same and there’s more to the relationship besides price, including hours of operation, how they deal with contract shortages, how they deal with quality issues, such as last year’s problems with DON, and their trucking services.
No. 10: Be reasonable
Archer said that producers need to be realistic about what they can achieve. She advised that it’s a smart move to hire someone else if producers can’t do everything themselves, especially if it means planting or harvesting can’t be done in a timely or proper way.
“Intentions are not profitable, actions are,” she said.