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Veteran Advisor

Best Marketing Plan

I remember some honest words from a marketing guru during the first sustained run up in grain prices, when what had worked so well for years....forward contracting.....fell on its face. One of the well known market advisors.....I won't name him, but his nickname is Big B, said something honest. He stated that really, marketing like Grandpa did...waiting to sell the crop until after you produced it, was what was working.

 

I remember that now  as any forward contracts look  pretty bad. I also remember what it felt like when corn hit $3 a bushel and I forward contracted most of my corn production for three years out and how tough a row that turned out to be to hoe. Knowing how many bushels of production you have, and then figuring out what you need to sell it for to pay your bills is not the worst plan. Something that is very hard to know in March or April.

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Senior Contributor

Re: Best Marketing Plan

Roughly ten months ago, Dec. 12' futures were roughly 30 cents higher than today.  Not all forward contracts look bad.  Look what one would have lost back in 08/09 by not selling until after the 08' harvest.  We went from right at 8 bucks a bushel down into 09' where I'm not sure if we cracked into the 5's.  Last year is pretty much the same.  We hit right at 8 bucks and the futures are still nearly a buck and a half from that.  There have also been some years like 10' where prices were higher at harvest.  However, I'm not sure I buy the mentality of producing then selling considering crop insurance has tracked this for several years.  Seldom does the harvest price futures come in higher than the planting price.  I believe I read somewhere to the tune of like 18% of the time since the 70's or something like that.   

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Veteran Advisor

Re: Best Marketing Plan

Red, I have to agree with you on your marketing plan, but if the market is going to offer me 7+ new crop and I see I have a crop coming, I hopefully will not past that up.  The forward sales contracts, hedging, etc, is sure great for the enduser and the CME and the marketing advisors though.

 

Gored, hopefully it will rain this weekend and we can hold on to a 140 national average.  That said,  when reading your posts, it seems to me that if you aren't getting paid to be a troll for some enduser, you are getting screwed.

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Senior Advisor

Re: Best Marketing Plan

I always have grain to sell, on hand, almost all year round. I don't have to sell it. I will sell it when there's an opportunity. My cash flow needs are always covered. I will take a governmt loan on grain from time to time as the interest is a pittance. I'm ready when reality departs from the USDA projections. I never buy options or hedge. 

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Senior Contributor

Re: Best Marketing Plan

Red I know where you are coming from. In '88 i had crop forward sold at a good price and then we turned dry. Pricee continued to rise and my crop continued to shrink so I could not forward sell more into the beter prices.

I also have had the crop harvested and did not like the price in the fall so stored it until July and sold it for less.

There is no fool proof 'method' for sales.

I now try to sell in increments but reward moves higher and stay away from selling in the dips.

 

Will never sell all my crop at the top of the market but that is true of the bottom too.

As long as my average price is better than many/most others I have a competitive advantage.

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Veteran Advisor

Re: Best Marketing Plan

That is what storage bins are for....I believe that was also part of what Big B said....growing the crop, holding  on past the harvest glut and waiting for your price seems to be a winning strategy with the new demand parameters that we live with.

 

 

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Senior Contributor

Re: Best Marketing Plan

A troll for an enduser?  Go back through history and look at weather markets past.  Take a close look at the futures market in 1988, 2002, 2008, and 2011.  See where those futures prices topped out, and then see what they did after.  This is definitely a weather market.  In all of those years mentioned, the futures peaked somewhere between June-August.  By not taking advantage of prices until after harvest, one would have missed good prices.  It adds insult to injury to harvest a poor crop and get a poor price to boot.  Never once did I recommend making sales when we were below the 5.68 spring insurance price.  In fact, I flexed hedges below there to pick up some to add to me hedges. 

 

I see problems ahead.  The biggest problem facing corn prices is falling crude price with rising corn price.  I'm not sure how well 7 dollar corn works with 60 dollar crude which is where a lot of economists see if falling to this fall/winter.  Considering ethanol is the biggest user of corn, it is something that definitely needs monitoring.  The next largest corn user if for feed.  Cattle make up a large percentage of the feed usage number.  The drought is doing nothing more than cutting the cow numbers.  Last year, a lot of the southern cows got relocated.  This year, those cows will be slaughtered because a lot larger area is being affected by the drought.  We're witnessing one of the largest spreads in history between choice and select beef.  This is because feedlots are moving out smaller carcasses, thus feeding less corn because of the heat.  It's better to move an 1100 pound steer and take a price hit than to have several 1300+ steers die in the heat.  Exports don't make up a huge percentage of the corn crop, but they do make up a percentage nonetheless.  The dollar is over ten percent higher than it was a year ago.  Our new crop corn sales thus far have been poor mostly due to Brazil having better prices.  QE3 is months away because Helicopter Ben isn't stupid.  Implementing it now all but assures a Romney presidency which spells the end of a Bernanke run Fed.  

 

There's a time to be bullish which was around the 5.00-5.25 mark on new crop futures, and there's a time to be bearish which seems to me to be around 6.50 new crop futures.  It reminds me of earlier this spring when live cattle were at 1.30, but very few people hedged because we were going to 1.40.  Everything is most bullish at the top and most bearish at the bottom which is also why so little corn was protected by endusers when we were below 5.25 just a few short weeks ago.  I wonder how much farm diesel was bought when crude was over 100 bucks?  I'd be willing to bet more than what was bought last fall.   

 

 

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