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Senior Contributor

Dollar Cost Averaging

Has anyone used the "dollar cost averaging" approach to selling their grain?  Let's say I harvested 10,000 bu. of corn and 4,000 bu. of beans.  My plan, sell the grain, same bu. per month over the next 10 months-Oct thru July.  Sell 500bu. of corn and 200 bu. of beans on the 2nd and last Tues. of each month. (Statistically, it would be interesting to see which day of the week most often recorded the highest price for that week.)  Anyway, it just might make some of us "emotional, knee-jerk" marketers more money.  At least I would sell some of my grain at the top price for the year. And for you "sharpies" it would take the fun and extra profit out of farming.  Just thinking out loud on this cold morning.  3* and white outside.

 

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7 Replies
Veteran Advisor

Re: Dollar Cost Averaging

............consider high probability --1/10 a likely long term low for corn..............

 

EDIT:  hank -- you were reading my mind -- was going to say, " skip this and next month on corn, if operation can afford."

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Senior Contributor

Re: Dollar Cost Averaging

Wind,

 

I do a modified version of that. I split my crop into 10 to 16 equal portions and unless I feel strongly that the price is too low or high, I try to sell a portion each month. If I am confident the price is going up soon, I may skip a couple of months, or if I am pretty confident the price is near the high, I may double up. I find this discipline generally helps me to beat the averages of most market advisors and most importantly keeps me from selling big percentages of my crop near the market lows.

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Senior Advisor

Re: Dollar Cost Averaging

Ed Ussett of the University of Minnesota shows a number of marketing plan models.  The one you described is called Grandma's Plan - sell a predtermined amount periodically.

There are other popular plans.  The U/M website has quite a lengthy discussion of marketing.  Here is a page that talks to your question.

http://www.cffm.umn.edu/GrainMarketing/CelebMarketingPlans.aspx

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Honored Advisor

Re: Dollar Cost Averaging

$ cost averaging was/is a fancy way to sucker investment money and regular commissions by stock brokers.

 

$ cost averaging is a way for those with decision making issues to just set a date and sell, doesn't make any difference if they need the money, if it is prudent, just do it on the ____th, nd,st of the month. Absolves them of duties and responsibilities. Does get the job done though.

 

Marketing is at least fifty % of being in business for yourself.

 

Only about three things enter into my main decision making proscess, Is the price in the top third of the range for this marketing year? Do I need/want the money. Do I need the space?

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Senior Contributor

Re: Dollar Cost Averaging

Hobby,

 

I will agree with you on stock market issues. I have found it relatively easy to price them well and buy or sell in bunches. However due either to unpredictable weather events or (hate to admit this) my own poor grain marketing skills, i have done much better averaging my grain sells over longer periods.

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Senior Advisor

Re: Dollar Cost Averaging

Two questions are most important for marketing decisions.

 

"Do I think the market is headed higher?"

 

"Do I think the market is headed lower?"

 

Not knowing is what makes marketing difficult. Contentment with your decision, what ever that is, makes marketing easier. If you do not expect the most, you won't be disappointed.

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mn farmer 101
Senior Reader

Re: Dollar Cost Averaging

Wind I do not post here often but in your question I would strongly recommend reading Ed Usets marketing book and blog at the University of Minnesota Center for Farm Financial Management. After reading this split half of your crop to sell on your $ average plan and the other half using seasonal pricing explained by Ed and I will think you will find that seasonal pricing as explained by Ed will net you more money.
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