Because of the fast-depleting stocks of soybean and corn, the recent news of heavy rainfall and flooding in the U.S. hasn’t impacted the price outlook of these crops as much as it should have. This is a challenge for farmers who have acres of unplanted land at hand because of the flood damage. Their revenues may decline because of a lower (than usual) production, estimated lower price of these commodities, and water damage costs.
If you’re a farmer struggling with negotiating trade, delayed planting, production risk from natural calamities, and high market volatility, don’t fret. You can overcome all these challenges with a pre-harvest grain marketing strategy that focuses on higher yield uncertainty. Take these four steps for improved grain sales and revenues in 2020.
Evaluate and Revise Your Estimated Production
Because of the flooding and the rainy summer season, you may have to update your anticipated production. The educators and economists at the University of Nebraska, Robert Tigner, Jessica Groskopf, Cory Walters, recommend conducting the production estimation in the below-mentioned categories.
- Original anticipated production. Estimate your yield using your actual production history bracket APH bracket close.
- Damaged production—planted on time. In this category, the estimated yield is based on a slightly reduced actual production history.
- Damaged production—planted late. You may have some amount of yield on these lands, but other factors might make it difficult to estimate the production.
- Prevented production. No grain planted on these acres of land.
Determine Percentage for Pre-Harvest Marketing
When you’re done estimating your production, it’s time for you to set a marketing percentage for your grain production. This step is crucial because you do not want to contract more grain than you can produce. It will increase your costs if you have to buy grains from another supplier to make up for your contracts.
It’s important to remember that you don’t need to sell any amount of grain before the harvest. However, if you’re selling soybean and corn, their prices are typically rising during the production season and lower during the harvest season. In this case, you might want to contract the grain before harvesting. But keep updating your pre-harvest marketing rate every month according to your crop’s progress.
Set a Marketing Contract
Determine what tools you will be using to implement your marketing plan. There are different types of marketing contracts that you may use for selling grain. For some farming businesses, a traditional cash marketing strategy may be enough.
If you are uncertain about your yield, it would be best to use a futures price hedging strategy that will protect your contract’s price but won’t require you to deliver the commodity physically, leaving more room for price growth. This strategy is usually more rewarding and less risky during high yield uncertainty.
Whatever the strategy you pick, aim to have an action plan that will help you manage the market more efficiently.
Determine Your Price Targets
When yield uncertainty is higher, you need to revise and set realistic price targets for your pre-harvest marketing strategy. By setting unreasonably high price targets, you may lose on the opportunity to modify grain prices during the seasonal high.
To set a realistic price target, determine the price per bushel of your production.
The total cost of production or production acres won’t be useful in making accurate sales decisions. Identify a reasonable goal for your profit margin and add that amount to your estimated break even.
Having a price target isn’t only about making profits; it’s about knowing the right time to pull the trigger. Establish reasonable targets for sales and make sure they fulfill your business’s financial requirements.
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