Incremental Sales
What’s Happened….
Corn, soybean, and wheat futures have all rallied in recent weeks, providing opportunity to begin new crop sales. It is difficult to guess where a market may peak. As prices rally, the opportunity to make incremental sales becomes increasingly important to reward the rally and secure a price that helps your bottom line.
In recent years, it’s not unusual for markets to rally, then quickly reverse and sharply sell off. Trying to time sales in this environment can be challenging. One week everything points higher for prices, and the next week the rally is over.
With hindsight, many farmers in 2024 held too much inventory because they didn’t have a process to reward the price recovery in late 2023. Don’t make the same mistake this year.
Why is this Important….
The process of selling is not necessarily easy. When prices are low, it’s somewhat simple to look upward and say you’ll sell at a certain, higher price. When the market does get there, however, there’s usually a reason to second guess whether you should follow through. It is important to recognize that you are selling a value you already determined is important on at least part of your expected production. The key is to execute.
What can you do?
The first thing you can do is to reflect on where prices were just a few months ago. At that time, you probably would have been willing to start making sales at current price levels. That means you need to follow through. So, get started! And be prepared to sell more if the market moves higher. As prices rally, an alternative to cash marketing is using puts to create a flooring mechanism.
By setting price orders above the market and being willing to sell into an improving price environment, you are building a higher price average compared to the price before the rally.
How much to sell? That is only answered by each farmer. However, where incremental sales are made and all your targets are hit, anywhere from 25% to 50% of expected production for many farmers makes good sense for the farm operation. It is enough that it matters, and not too much, should prices continue upward. If you have the wherewithal to retain ownership using futures or options, this may encourage you to be even more aggressive.
All of the uncertainty producing this year’s crop has yet to occur. Getting back to the concept that prices can tip over quickly, recognize that ample world inventories and an uncertain economic climate leaves the markets open to fast price declines. Being prepared and then executing is key. Have key conversations with those around you that can help you achieve your goals, understanding all the risks and rewards of any strategy.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a 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 tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the 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