Marketing plan helps future More and more producers are realizing that in order to ensure their ability to farm year after year they have to start capturing prices at a time when they do not have anything to sell, said Al May, Extension grain marketing specialist at South Dakota State University.
"It can be complicated, but it can be very simple, too," he said. "It is very important for producers to evaluate their financial position, their cost of production and then translate that into "What is the market offering me for a price now?" and "Can I at least lock in a break-even?"
The first step in developing a marketing plan is knowing the cost of production. "If farmers know what it is costing them to raise a bushel of corn, regardless of what market price might be, they will know what price they need to receive to cover their direct costs," May commented.
Step two involves determining if crop insurance coverage is sufficient. "Insurance should be looked at as an important risk management strategy," said May. "You can combine what you might expect to get for a return on the policy with the market price of the crop that you raise."
Producers often stop at step two and just depend on crop insurance. However, if a crop is produced, it still has to be sold, reminded the specialist.
Step three involves developing a plan for how the crop will be sold and how changing prices affect that plan. May recommends setting a target price. "If, on this day, crop A is at this price, I will sell "x" number of bushels," he explained.
Many farmers fear that if they forward price grain today, the prices could be higher at harvest time. "We try to get producers to look at what is in that price that is offered today. "Can it cover my costs? Can it provide me with at least break-even plus profit?" and if they can say yes, they really have to happy with the price they took today."
May's goal is for producers to make decisions based on price. He wants them to get to a point where they will have a percentage of their crop committed before it is harvested.
"By evaluating their risk position and locking in a price before harvest, producers can get a price they can at least live with in return for making sure they do not take a lot less," he said.
Government programs such as marketing loans and Loan Deficiency Payments (LDPs) offer a whole new twist to marketing plan, said May. "Now, farmers have to look at marketing loans to decide if that is the strategy they are going to use to capture the price they need," he said.
A lot of producers, especially in the oil seeds, are looking at marketing loans and LDPs as the primary marketing tools being available to them because cash prices are simply not to that level, he reported.
The last step in developing a marketing plan is to evaluate storage options, both commercial and on-farm. This includes deciding if storage is available and what the cost will be.
"If grain is just sitting in the bin, interest is accumulating on a loan they have with their lender. So, farmers have to count that as well," he said.
May said a marketing plan is important any time of the year because "once harvest is here, they have to plan for what they are going to do with the grain after that if they have not done anything all summer."
For more information on grain marketing, contact your local Cooperative Extension office or Al May, firstname.lastname@example.org, or (605) 688-4862.