A lot has been written and discussed recently about putting together a new crop marketing plan as we work our way into 2017. While well intended many of these pieces have seemed to repeat the same information. Of course many of you know you need to find your breakeven per bushel, add in target margin and make sales from there. Easy, right? Well, no, not really. In fact a marketing plan-a proper one anyway-should really be a plan, one complete with details and able to factor in any type of changes your operation may face as we work through the marketing year.
Of course as has been discussed your first step in any marketing plan is to estimate your costs associated with growing the crop. This needs to take place prior to determining what exactly you're growing in the year ahead. Take the time to work through inputs and the variables that may be needed throughout the growing season.
Having several working cost outlines will help you weather through any kind of adjustment. No, you may not need fungicide every year, but having a price flow including fungicide costs with other outlines that may not price fungicide, but include the cost of pesticide for Spider Mites for instance will help you know what could pop up without feeling as though you've been caught off guard.
For some having multiple cost outlines may be overwhelming, if you feel this is an overwhelming practice simply factor in "miscellaneous expenses" as a way to include these costs variables without having to wade too far into the what ifs.
Don't forget to factor in your cost of living as well. As with any other part of your cost outline some find it helpful to break this down into an itemized list while others factor in their cost as a type of salary. No you may not be drawing a paycheck in a traditional sense, but you have a cost associated with your existence and that needs to be included in your overall operation outline.
From there take a look at your yield expectations. I tell most of my customers to take into consideration their best crop down to their worst crop. The law of averages tells you using your APH or insurance based production history will give you a general idea of what to expect production-wise. Having a wide range of production ideas though will allow you to know where your bottom-line is on making profitable sales.
Of course factoring in your highest cost outlook with your lowest yield projection may cause significant indigestion so it's not necessarily something I would recommend doing after a big meal. It's also important to factor in outside income via insurance or government entities. Do not do this to count your chickens before they hatch, but to instead give you a better outline of your overall margin health.
Once you've built outlines of your cost per bushel and feel comfortable with a range of pricing needs start to look at what I call your non-negotiables. A non-negotiable is something you are unable to change; those include space, cash flow and movement to insure quality needs.
The first sales you need to make are the ones to cover bushels you have to move at harvest time. Unfortunately the need to make these sales and get bushels moving may make them your lowest priced bushels you sell, but knowing you have space needs secured at a profitable level allows you to be a little more flexible in additional sales giving you the time you may need to market at higher levels.
Cash flow needs tend to trip the growers I work with up the most. It is human nature to feel you have enough time to wait out a lower market move before making a sale to generate the cash flow you need. However, most times the longer you wait to get started the harder it seems to actually get the ball rolling.
I am amazed at how many calls I receive on a Monday with folks needing to generate cash by Friday. These forced sales to generate income always seem to happen at the worst pricing level unless pure luck is involved. It is also important to remember that many times you're not the only one having to move bushels to generate cash flow (in times of property taxes especially) so basis strength may be lacking, further enhancing the benefit of acting early when it comes to making these sales.
Quality needs (bin coring) and plain ole timing needs (do you take the wife on vacation in February) need to be factored in as well. Do you want to hold your beans into summer? If not building a marketing plan with a deadline on shipment is necessary.
Once you have a rough outline on breakeven targets, bushels needed sold for space movement, cash flow dates as well as amounts needed and a projection on when you want to move your bushels you can start to build your actual marketing plan.
I recommend using an inverted pyramid when making sales, meaning you sell the lowest amount at the lowest starting price. For instance if you know you want/need to start selling corn at 3.90 futures, but want/need to shoot for a 4.15 average start by aiming to sell 5% of your expected production at 3.90, 10% at 4.05, 10% at 4.20, 15% at 4.35 and 20% at 4.50 (futures prices included here are completely hypothetical and are included as an example only). Most times I don't like to see a grower get over half sold well in advance of the crucial production period for a crop hence the stopping around 60% here. Having that amount locked in allows you to feel confident with what you have sold while leaving you flexible in the case of a production scare or market rally.
It's also important when putting together target orders to decide whether you want to shoot for futures only sales waiting for basis improvement or just lock in the cash value so you know your absolute bottom value on the sale. Many times a hybrid plan using both works best and gives the most flexibility. Don't forget a bit more aggression is not the worst thing if the market is well above your starting target point-for instance if your bean starting target is $9.25 cash and you can sell $9.75 rolling the sales you would have made at $9.25 and $9.50 into a larger chunk sold at $9.75 is a good approach.
In the end it is important to remember this is a rough outline or plan to how you want to react to the market. If you have a difficult time actually pulling the trigger and making sales when the opportunity arises do yourself a favor and have solid target orders in place with a buyer you trust. Remember when it comes to these orders not to allow emotion to trump rationality, you put them in place for a reason and unless something changes dramatically fundamentally those reasons will remain intact as the growing season progresses.
The biggest thing I cannot express enough is not beating yourself up over sales made prior to a market trading higher. Many times I will hear "I've lost x amount of money on those bushels." You must correct that thinking, while you may not have had the opportunity to gain the increase in futures on those bushels, the sale you made was done to ensure profitability, after all you can't scale sell into a rally if the market doesn't move higher after initial sales are made.
As always don't hesitate to contact me with any questions you may have, I'm here to help. Have a very Merry Christmas; we'll talk again in 2017.
The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of Pro Farmer."