This is a timely question and it deserves a straight answer. I believe that having a solid marketing plan and making proactive grain pricing decisions are more important today than ever.
The past year has been a difficult one for proactive grain marketers. We like to look ahead with our marketing decisions, and this makes us more likely to be the first onboard with new-crop sales and less likely to store old-crop grain for too long. This approach works well when markets are flat or trending lower. But when a bull market emerges, the proactive approach can leave us with pangs of regret for being too early and too cheap with a number of our pricing decisions.
So, is marketing pointless if the best marketing decisions in the last year were no decisions?
Let me make the case for the importance of marketing in the age of ethanol. Ask yourself the following questions. Do my marketing decisions become more or less important when:
The safety net in ag policy gets smaller? I'm not an ag policy expert, but I'll bet that five years from now the safety net for grain producers will be different and smaller than the one we know today.
Prices get further and further away from loan rates? Less than two years ago I cautioned farmers against pricing grain too close to the loan rate. After all, I argued, if you miss a pricing opportunity you still have plan B — the loan rate. Today, loan rates are a long way back in our rearview mirrors. There is quite a gap between today's grain prices and loan rates, and plan B is a poor option.
Input costs rise sharply? The accompanying chart shows costs related to seed, fertilizer and fuel rising rapidly, particularly in the past five years. Seed costs have risen 43% since 2002. Over the same period, fertilizer costs are up 59%, and fuel costs have more than doubled. The data from 2007 will show even more increases in these and other costs. And we haven't even discussed land rent.
Watching input costs rise is sort of like playing poker with your buddies, only tonight the ante is$5/hand, and not the usual 25¢. The game is the same, but suddenly you feel compelled to sit up straight and pay attention because the stakes are that much higher.
So, is grain marketing still relevant? With the safety net of policy bound to shrink and input costs rising, your marketing decisions are more important today than ever.
Next month I'll tackle the issue of adapting your marketing efforts to meet the challenges posed by the age of ethanol.
Ed Usset is a grain marketing specialist for the University of Minnesota Center for Farm Financial Management (CFFM). Working with his colleagues at CFFM and in Extension, Ed developed the “Winning the Game” workshop series. His first book, “Grain Marketing is Simple (it's just not easy),” was released in September 2007 (www.cffm.umn.edu/simple/ ).
Ed was also a wheat buyer responsible for sourcing grain for eight Pillsbury flour mills located through-out the country. In addition to his work at the University, he also offers presentations nationwide on the topic of grain marketing.
You can reach him at: [email protected]