Posted: June 29, 2016
Please, somebody repeat my mantra? I believe it is something close to – “Knowing your individual cost of production lets you look at the market and see if a profit is available. If profit is available; you decide if you want to take some of that profit, or continue to gamble on price.”
Looking at both local old crop and local new crop prices we have pricing opportunities not even hoped for during the recent winter months. These prices will generate a profit for some producers. If you are one of these producers and you are not incrementally marketing your old and/or new crop I want to know what price you are still waiting for. There is any number of reasons to hesitate on pricing. Maybe you are sold out? I get that. You are entitled to wait on any price you wish. I’m just curious. For those that participate in an Extension grain marketing discussion group, remember to follow the moving average as one indicator of where a trend is headed.
The USDA acres report and political instability aside, we also hear about cattle on feed, crop conditions, the RFS, and South American production. To me this information serves to clutter my thinking on marketing. Too much information sometimes causes us to do nothing. By doing nothing our uncommitted bushels don’t get priced. I forget who told it this way – “If I have 20% of my bushels priced I am 80% positive prices are going up.”
We should recognize the implications of what current weather conditions are doing to the growing crops and what the next few months’ weather might do. However, markets offering profitable pricing opportunities do not occur all the time. I do not like to leave money on the table any more than the next person so here is how I think about this point.
My acres are known but my yield is not. I have all the bushels priced that I am comfortable with at this time (yes, I priced some what looks like too early). My revenue protection crop insurance covers some of my price risk, but my personality is not good with getting all my protected bushels forward priced. This leaves me with quite a few bushels that will be priced later should I actually harvest them. If prices do rally because of weather problems and I have bushels I can take the improved price. If prices rally and I don’t have bushels; I am out of luck except for any potential crop insurance indemnity. That’s just me.
Finally, when we get a minute let’s start to do the math on what we will do with the bushels we make this fall that are not yet committed. The concept of ‘carry’ is integral to post-harvest marketing. These calculations are best done just before we start harvest. However, it is not too early to begin considering what the market wants us to do and carry is a tool used in exploring what marketing method is appropriate.