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Honored Advisor

Big Al on risk management 18yrs ago

Hat tip to Goddessofgrain on Twitter.  Al Kluis wrote a 2002 article on marketing in a bullish environment, that perhaps we should revisit.   Now keep in mind this was from 2002, 18 yrs ago.

https://www.farmprogress.com/lessons-learned-5-corn-and-9-beans   

snip:

Corn and soybean producers have just gone through some of the most volatile grain markets since 1995-1996, when corn prices rallied to over $5/bu. Those lessons should have been applied to the grain markets this summer.

Options To Consider:

Here are five lessons that have passed the test of time and worked well for farmers in years with great price volatility.

  1. The news is always bullish at the top — just as it is bearish at the bottom. They do not ring a bell to start a bull market or to announce the end of a major up move. You need to be disciplined to keep offers in place and sell, even when the news is bullish.

  2. Producers who made spreadsheet decisions — for example, decisions made based on an acceptable profit level — were incremental sellers this summer. When the dollars per acre add up, make the sale.

  3. Scale-up sales — having offers in and making three to five sales of 10% — creates a great average selling price. Having resting offers to sell above the market is one of the key ways to take advantage of higher prices — and it takes a lot of the emotion out of the market.

  4. Commodity markets go down twice as fast as prices go up. In two weeks you can wipe out two months of price increases. That's been especially true this year, with the commodity funds' huge long position.

  5. Holding cash inventory is not always the best way to manage your money. With the potential for a large crop in South America, the soybean market is not offering any return to storage for soybean producers to carry the crop into next spring and summer. For producers who are willing to re-own, call options or futures out of some or all of your cash inventory in November will be a good move.

Even if you're in an area with a smaller crop, making the right marketing decisions on all of your bushels is very important.

“Doesn't the Board of Trade care that we have a crop disaster?” asked an angry Ohio farmer in early October. It's twice as frustrating to watch prices drop sharply lower when your yields are low as well. The reality this year is that we have a reduced crop, but demand for corn and soybean meal is down as well.

..

What Should You Do?

We've suggested using the “30-40-30” sales plans.

  • 30% — We sold 30% ahead. We made several new crop sales recommendations this year with most farmers having 30% of the soybean crop sold ahead for off-the-combine or January 2003 delivery.

  • 40% — We suggested getting another 40% (minimum) sold in the cash market now and then buying back the May soybean call spread as a way of maintaining some ownership.

  • 30% — The last 30% will go under loan.

3 Replies
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Honored Advisor

Re: Big Al on risk management 18yrs ago

This is all well and good.  However, NOBODY saw this rally coming.........NOBODY!   USDA, as usual, were talking numbers that were complete gloom and doom and cost farmers millions of dollars by selling too cheaply. The more grain that was sold ahead, the higher the market can go now. Many farmers are either sold out or have very little to sell.  Market advisors took the bait as well, hook, line and sinker.   Most farmers who hadn't sold much were chastised for not making sales by these same market gurus.  USDA's lofty predicted carryover numbers that they pulled out of thin air are now catching up with them. 

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Honored Advisor

Re: Big Al on risk management 18yrs ago

By the way.......No floor talk threads on here for more than a week.  It speaks volumes.  On a site that proclaims "successful farming"  seems to be pretty far from the truth.    

Edit.........we have one today.   Hurray!  Thanks Marketeye!  Your work often times goes unappreciated.  

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Honored Advisor

Re: Big Al on risk management 18yrs ago

So true roaring—- no one is really involved in marketing.  

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