“I don't do outlook.” These are my words and I often use them to open presentations on the topic of grain marketing. I tell my audience that we are about to spend precious time grappling with the challenge of grain marketing, but don't expect to hear talk about grain exports, South American crop prospects or wet weather in the eastern Corn Belt. The terms “La Niña,” “oversold” and “technical price support” will not be mentioned. From my lips you will not hear a market opinion or price prediction.
My approach to grain marketing is built around an attempt to answer a simple question: “How would you price grain if you had no clue about future price direction?”
This is an important question because — forgive me for being so blunt — you don't have a clue about futures price direction. I'm clueless, too. Would you like an example? The life-of-contract low for December 2009 corn futures is $3.02½, set three years ago. Last summer, when the December 2009 contract reached a life-of-contract high over $7, who could imagine that it might set another new low before it expired?
I tell farmers to quit looking outward for marketing guidance — quit making decisions based on your outlook, or someone's market opinion. Look inward (hence the term “inlook”) to your own operation for marketing actions that make sense for your business. This process starts by understanding your production costs. Last year I wrote a marketing plan for 2009 corn based on my estimates of production costs in southern Minnesota. At the peak of fertilizer prices last summer, that estimate ran close to $4/bu.
Under normal circumstances, having the opportunity to sell $4 cash corn is a challenge. But these are not normal circumstances. For now, let's put aside last summer and fall, when the market gave us many chances at $5-6 cash corn, and focus on 2009 (see chart). Since early January, I count three separate opportunities to make 2009 sales close to or above the $4 mark.
A MARKETING APPROACH that focuses on outlook alone can lead to trouble when the outlook is “I'm bullish” and it ends up wrong. For example, as of mid-July some market advisors had yet to recommend a sale of 2009 corn. Zip. Zero. Nada.
The inlook approach would not allow you to pass on some early and profitable sales. Anyone who passed on these early opportunities faces a harvest with market prices that could be 50-80¢ less than production costs.
In early June, I did another inlook. Based on my analysis of 2010 production costs (fertilizer costs are way off their peak) and the opportunity to lock in impressive margins over one year out, I suggested a start on 2010 pricing with new-crop sales of corn, soybeans and spring wheat. I had no idea that just four weeks later prices would be 70¢ lower in corn and more than $1 lower in soybeans and spring wheat.
Look inward. Have a marketing plan based on your business needs and not on the noise around you. Execute the plan with discipline. This is the only approach I know that gives you half a chance of taming the markets.
Ed Usset is a grain marketing specialist for the University of Minnesota Center for Farm Financial Management (CFFM). He can be reached at [email protected].
Join the Back to School with Ed Usset class! This amazing new feature of Corn & Soybean Digest, in cooperation with Ed Usset and the Center for Farm Financial Management. Ed’s challenging and authentic quiz questions are designed to test your grain marketing knowledge, and will help you learn while having fun! Ed Usset is the author of “ Grain Marketing is Simple, It’s Just Not Easy,” and is a grain marketing specialist at the University of Minnesota.