Marketing tips from my best friends

Marketing tips from my best friends

A farm's exit plan can be the difference between profit and loss.

Early in my time with the University of Minnesota, I introduced a handful of make-believe grain producers to help illustrate both good and bad marketing habits. My celebrity producers proved to be a great teaching tool and, since then, my handful of characters has grown to fifteen (and, yes, family and friends are concerned). Each character uses a different approach to pricing grain. Using real prices from the last 3 decades, they shed light on things that work – and don’t work – over time. Let’s take a look at what two of my friends – May Sellers and Hank Holder – can teach us about holding unpriced grain after harvest.

May Sellers is my best performing marketer over the past 26 years. Every year she holds her newly harvested corn and soybean crop in storage on the farm, with a plan to sell in late spring. Her price is the cash price in the last week of May, less variable storage costs (interest and shrink). She performs well because cash prices tend to be lowest at harvest and highest in the May/June period. Is this true every year? Of course not. But the tendency is strong enough to put her at the top of my list.

I’ll bet that many Corn Belt producers have newly harvested corn and soybean crops in storage. Is it wrong to ask for an exit plan? Are you waiting for 30 cents more? Do you expect your marketing advisor to tell you the right time to sell? If you don’t have an answer, May has an advantage because she has an exit plan for in storage.

Hank Holder is my worst performing marketer since 1990. Hank struggles with the idea of an exit plan and, every year, he holds his grain in storage too long. Since he only has enough storage for one crop, each year he must sell right before harvest, to make room for the next crop. His price is the following harvest price, less variable storage costs.

May and Hank have the same approach after harvest – store unpriced grain on the farm and wait for a higher price. Their difference is in the exit plan. May Sellers empties her bins by the end of May, while Hank insists on holding his corn and soybeans for another 19 weeks, until early October. How much can 19 weeks cost?

A whole lot of money!

Waiting too long costs Hank nearly 50 cents per bushel in corn and more than $1.00 in soybeans (see accompanying table). Is Hank’s price worse than May’s every year? Of course not. We only have to go back to the drought of 2012, when Hank’s harvest price for corn and soybeans was $1 and $2/bu. higher, respectively, than May’s price from five months earlier.

Here’s a tip from May; have an exit plan. Hank’s performance over time suggests another important tip; don’t hold your grain in storage too long.

My celebrity producers add a little fun to a difficult and frustrating topic. Hopefully, they have you thinking about your own exit plan.

May vs. Hank, 1990-2015 crop years

(average price in $/bu.)

 

 

 

   
 

May Sellers

Hank Holder

May’s advantage

> / = to Hank

Corn

2.98

2.51

0.47

19/26 years

Soybeans

7.55

6.53

1.02

21/25 years

  • All cash prices are from Southwestern Minnesota.
  • Due to storage limitations, May and Hank sell 20% of their grain at harvest, and this sale is part of their average price.
  • May and Hank’s results are net of on-farm variable storage costs (interest and shrink).  
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