Intentionally Strategic

What’s Happened…

Since August 12 when the USDA WASDE report was released, grain markets have been on the offensive with significant fund money buying corn, soybeans, and wheat. Several fundamental factors along with geopolitical issues have helped propel prices to some of their best levels in more than three years. Volatility has picked up and pricing decisions are quickly becoming important. The goal is to be strategically balanced. While you probably can’t afford NOT to sell, you want to keep yourself in a position to take advantage of potentially higher prices, due to tight inventories. The same could be said for cattle producers this year, where record–high live and feeder prices created opportunity and more risk.

Why this is Important…

The old saying “be careful what you wish for” has encompassed the grain markets. Producers were wishing and hoping for a price rally. Now that it’s here, many are asking what they should do with it. The answer is strategic marketing. This means well thought-out marketing strategies that keep the producer well balanced between sales and ownership. You don’t want to over or under-weigh sales. You will want to maintain ownership and, at the same time, shift downward price risk. That sounds like a tall order, and it may be easier than you think.  

A strategic approach sells cash into a rally and retains ownership using fixed-risk call options or option strategies. To this on expected grain or livestock that is not forward sold, purchase puts to manage downside price protection. In thinking this through, you’re creating a balance that is strategic and can help you to manage whichever way the market may go, rather than the market managing you. An intentional approach is structured to cut through emotions while focusing on the right tools for the right circumstances. 

What can you do about it?

Time is perhaps your most valuable commodity. The return on investment for time spent thinking through and strategically positioning your farm operation for market moves could be the best spent time for the entire year. Balancing and executing takes good communication, time, knowledge, and discipline. Write this down and keep it in front of you. Help can come from your market advisor or buyer. However, make sure you’re making sound strategic decisions based on math-associated outcomes and not so much on emotion or gut feel.  

The bottom line is to think about marketing much like you would think about going to battle in war or coaching a sports team. You make a plan, execute and then adjust as necessary. Surround yourself with those critical to helping you reach your goals, just as generals have staff and coaches have assistants. Most importantly, follow the plan and don’t abandon it. 

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.

About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

Author

Bryan Doherty