HAVE NEW CROP MARKETING PLAN FIRMLY IN PLACE PRIOR TO SEEDING
BY JON DRIEDGER
Although seeding is still a month or two away, it’s not too early to start thinking about your marketing plan for 2016. In fact, growers should be doing more than thinking about new crop sales—they should have most of their selling plans laid out in great detail if they want to maximize the value of the crop they will be growing this summer.
Inevitably, the worst sales of the year are ones that are made in haste and in response to an immediate need that could have been anticipated earlier. Many growers already know this and start making new crop sales ahead of time. However, in some cases the planning around these sales doesn’t go deep enough. The decision to sell or not begins and ends with a best guess as to whether or not prices will increase or decrease, with perhaps a nod to whether it appears profitable. Often, sales are also done in an ad hoc manner, maybe in response to a buyer calling with a “special” that is only available for “limited tonnes.”
Aside from a significant reduction of stress, there are several reasons why it’s advisable to have a detailed marketing plan laid out well in advance. First, it’s impossible to know if you are making the right selling decision for your farm if it’s not done within the context of predetermined profit targets and a detailed map for the coming crop year. This goes for each sale made for each crop.
As part of this process, producers must be able to answer the following questions:
- Does my idea of “profitable” truly reflect all of my costs? What is my cost of production by crop?
- How much grain do I need to move at harvest to meet cash flow and storage needs? What about other windows of the year when cash is needed?
- Which crops on my farm have the most potential upside at today’s price? Which have less upside and/or more downside? Are there seasonal price patterns for any of these crops? Is this based on a well-researched opinion?
- What is my risk tolerance? Is this due to my personality and management style, or is it due to debt levels, tight cash flows or other circumstances?
- Can I get an act-of-God clause for contracts on any of the crops on my farm? If so, does that mean I can only lock in a lower price? Is that the right trade-off?
- Which crops do I need to be more cautious about forward selling due to grade risk? How does that impact sales decisions for other crops?
Only once all these variables are known can a producer make a good decision when faced with questions such as: How aggressively do I sell new crop peas? Should I plant CPS wheat over CWRS? Should I lock in a basis for canola or the flat price, or perhaps neither? Should I consider a crop that I haven’t grown before if it’s more profitable for my farm? Should I lock in the higher new crop price for wheat in the later delivery window or take the lower price for fall delivery?
It takes time and focus to put together a good marketing plan, and it’s very difficult to do once spring hits since there are few breaks between seeding and harvest. It is hard enough to stay on top of adjustments that might be needed in response to changing markets, crop conditions on your farm or other factors, never mind trying to build the plan from scratch. If it’s not in place by the time you hit the field, it’s probably not going to happen, and every selling decision going forward will be made without a plan to evaluate its merits.
Producers also need some flexibility in their plan—markets are dynamic and can change quickly, and on-farm needs will shift as the season unfolds. That said, it’s much easier to adjust a marketing plan than to respond to a changing market without that roadmap in place. When it comes to a new crop marketing plan, it’s impossible to start too early.