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Marketing – What are the Alternative Marketing Methods?

Posted: September 25, 2012

Take a look at some different options you have for marketing your grain. Here, we discuss some pros and cons of each.

Marketing grains at harvest is a tried-and-true method. However, becoming more familiar with the range of grain marketing tools allows us to better balance the choices affected by our production risk, acceptable price risk, financial and cash flow needs, and a commodity outlook. No individual marketing tool is appropriate for all situations or all farmers. Understanding these tools may help us become more effective (and flexible) commodity marketers.

Given the below grain marketing tools – we can do some rough calculations on expected net returns from implementing any one of these tools. Securing a good average price and minimizing risk can go a long way towards long-term economic viability for our farm business(s). Alternately, we could go for broke and hope for the best.

Marketing Table

Cash Forward Contract



Pros:



Eliminates price risk



Eliminates basis risk



Is a regular feature of dealing with our normal cash buyers



Allows marketing a flexible amount of grain as there are no standard bushel requirements



Has no margin money possibilities


Cons:



Increases production risk as we will deliver contracted bushels even if/when we do not have them



Getting a fair basis may be a challenge



Institutional risk



Forego rising prices





Storing On-Farm for Later Marketing



Pros:



Stretches out the marketing season



Allows for flexibility with grain delivery


Cons:



Grain quality can deteriorate



Costs are incurred with shrink, and interest



Has price risk



Has basis risk





Basis Contact



Pros:



Stretches out the marketing season



Can eliminate storage costs



Eliminates basis risk



Allows marketing a flexible amount of grain as there are no standard bushel requirements



May allow partial payment


Cons:



Has price risk



Institutional risk





Futures Contract



Pros:



Eliminates price risk



Stretches out the marketing season



Very liquid


Cons:



Has basis risk



Margin money may be required



Must market in 5,000 (maybe 1,000) bushel units



Forego rising prices





Options Contract



Pros:



Eliminates price risk



Has no margin money possibilities



Stretches out the marketing season



Very liquid


Cons:



Has basis risk



Must market in 5,000 (maybe 1,000) bushel units



Requires premiums



Has limited protection against price movements during contract expiration period

Contact Information

John Berry
  • Extension Educator, Business Management
Phone: 610-391-9840