Planning Leads to Grain Marketing Success02/06/2018
While many farmers worry about the weather, public policy, global crises and prices, more should focus on cost of production.
“If you don’t know your breakeven point, you can’t profit,” said John Berry, Penn State Extension, one of several panelists talking grain marketing at the Jan. 25 Corn and Soybean Winter Expo.
Other panelists were Michael Howlett, Howlett Farms; Zach Harding, Lansing Trade Group; and Eric Gibson of the U.S. Soybean Export Council.
Former Virginia Tech ag economics professor David Kohl moderated the panel.
Berry said knowing cost of production includes keeping, reading and thinking about records.
“We are grain and soybean farmers because we want profits,” Berry said. “When margins are tight, money is to be made in cost control. The market doesn’t care about you. The function of a market is to drive the average producer to breakeven.”
He said farmers should avoid unnecessary risks.
“Baseball starters always swing for the fences, but I am good with just a single,” he said.
Howlett said farmers generally know little about the markets despite the fact that they raise and handle commodities.
“As producers, every day when you wake up your chips are on the table and only you can take control,” Howlett said. “Know your options, cost of production and have objectives. Only you can decide when to cash out. Plan ahead.”
He said that proper planning can help farmers who feel they are at the mercy of the market since they have 24 months to sell their harvests.
“Sell your grain at a level greater than your expenses,” he said. “Think about things objectively. There’s no silver bullet for marketing.”
Howlett said discipline, lots of effort and time are keys to proper marketing.
“Sell into rallies,” he said. “Don’t be a bystander; you don’t have to sell everything you have.”
Howlett said some farmers feel bad for selling too little just before prices suddenly surge upward. But he added that farmers should feel thankful that they sold some at least some of it, and then sell more.
“Don’t get caught up in the noise,” he said, adding that he sees indicators of a bullish market in the near future.
Gibson said that “sustainability” has become big in the world market, especially Europe.
“Europe continues to be a big market for soy meal,” he said, “but they don’t like GMOs.”
With a slow economy in many European countries, along with the rise of veganism, consumption of meat is down.
“One out of every 10 Germans is vegan,” Kohl said.
He added that in 2000, only 1 percent of the U.S. population was vegan. This year, the number is expected to increase to 5 percent.
“So there’s a potential soy market?” Gibson interjected.
The panel also discussed market competition from Canada.
“Canadians have established themselves in the market,” Gibson said.
One reason they’re expanding is that frost-free days have increased since about 15 years ago, giving Canadian growers enough days to raise grain to harvest.
The panelists also talked about crop insurance.
“Someone farming without crop insurance is asking to go broke,” Berry said.
He said farmers should avoid spending for the purpose of eliminating their tax burden.
“If you show three years of no profits, you will have close to zero chances of getting a loan,” he said.
Howlett said farmers who have switched from dairy to grain need to learn how to sell grain in a market that fluctuates more rapidly than dairy.
“If you have a bill to pay and you need the cash, sell the grain so you can pay the bill,” Howlett said, “instead of risking the price will go up because it’s a sure thing the interest rate will go up, and the fees for not paying a bill will happen.”
Kohl said that working capital gives operators a cushion to fall back on as needed.
“You need working capital when you are growing grain,” he said.
Source: Lancaster Farming