Shutting Out the Noise to Market at a Profit

Posted on 03/09/2017 10:23 AM

A month or so ago I wrote a column discussing how to take what you've learned from your agronomic practices and use them when it comes to marketing your grain. This idea had come from a discussion centered around why so much time is spent focusing on improving production, with little done to enhance a grower's marketing plan in the same way.

At the time it seemed difficult for me to wrap my mind around. Agronomic practices are built on fundamentals, past experiences and what you're trying to accomplish from an operational perspective, just like marketing your grain. Why one wouldn't use the same type of disciplined approach on the selling side of production seemed for lack of a better word, productive.

However a comment made to me recently on a certain social media platform brought it all full circle and suddenly the reasons why became crystal clear.

The comment came after a recent discussion of the moves in the bean market these last 2 months. As you are well aware much of this recent rally has caught even some of the most bullish spectators off guard with gains of nearly $2 a bushel on what some could call somewhat limited fundamental news.

In a passing way the commenter simply stated (and I'm slightly paraphrasing) "Market action like this is exactly why farmers spend more time on production than marketing."

And with that it hit me. Of course that's why. After you've put all you can into producing the best crop possible the only thing that is out of your hands is weather, and no one has ever promised you they have a handle on or can control the weather. Of course you can get forecast information, but you take that with a grain of salt and move on. The one thing you can accept when it comes to crop production is weather is out of your hands and out of your control.

In the meantime on the flip side there are people paid thousands of dollars to help you feel as though they have a finger on the pulse of market moves. You want to work with the guy (or gal) that can give you insight into market direction no one can offer. The analyst/broker/buyer side of the industry is predicated on making calls regarding market moves and yelling from the rooftops when he or she has "nailed" those moves.

While we have grown used to having weather forecasts change or flat out be wrong, it's still a difficult pill to swallow when market forecasts shift. When the fundamentals that have been beaten into your head as definites become maybes, or worse yet prove to be wrong it's easy to stop marketing and assume everything else you have been told is just as inaccurate.

However, the truth is just because something has shifted or a transition in fundamentals has taken place you don't abandon ship. Instead when the market moves opposite of your expectations you must ask yourself what you can do to benefit from these changes.

Today we're going to discuss ignoring market noise and focusing on your number one priority, profitability.

In my last column we discussed scale selling into a rallying market and I invite you to look back through that article to get an idea on how I prefer to see growers approach a rally. One of the biggest mistakes I see made when it comes to marketing is taking an all or nothing approach.

Many times the all or nothing approach is where the extra anger or resentment comes from in marketing. A grower has had a certain market opinion driven into his or her head for so long the first time a decent opportunity comes along they grab hold of it with both hands, forgetting what he or she will do if/when the market takes another leg higher.

Maintaining a scale sell approach from a point of profitability while keeping the amount of time left in the growing season or before the grain must be moved in mind will allow you to take advantage of pricing opportunities while remaining flexible.

When making the determination on where to start selling in a rally-or in the case of many producers at this juncture when to continue selling you must bring everything back into focus. Throw away the noise and the attempts at nailing market calls and focus on what is happening at this point in time.

First ask yourself what you were expecting versus what you're currently getting. Of course if you were expecting a top of around $9 for beans and you're already well above that with plenty of beans left to sell putting some additional sales on with the bushels you have free is not a bad idea.

Secondly, do not put yourself at unnecessary risk. Perhaps for some this piece of advice will come way too late, but too many times I see brokers/analysts suggest selling calls as a way to finance a position or entice a market to move in a certain direction. If you know what you're getting into when entering into a position like this and feel comfortable in doing so then by all means, have at it.

But if you're one of many who doesn't quite understand what it means to sell a call or calls in a market, or what exactly it means if your local elevator's pricing plan triggers at a high end selling value, take a step back and a deep breath. Many times pricing plans can be easily sold on the likelihood of something not happening, especially when the market is slow. Signing up for a program you don't completely understand simply because you don't think or you've been told a market can't possibly do something unexpected is the best way to open yourself to more risk and are more likely to feel burned or taken advantage of when all is said and done. The only thing worse than selling at a lower value is realizing not only are you sold at that value, but you're also possibly overcommitted at another undetermined value.

Now I'm not saying there aren't ways these approaches will work, but if you don't know the full extent of the type of risk you're entering into saying you're managing said risk is a bit of a stretch.

Third, selling at a profit should never be frowned upon. I repeat one more time and louder, SELLING AT A PROFIT SHOULD NEVER BE FROWNED UPON. One of my biggest pet peeves is after someone makes a sale and the market moves higher they call in to tell me how much money they've lost. Let's get this clear, there is a significant difference between a loss in opportunity and a loss of money. When you sell at a profitable level you are locking in profit on those bushels.

If the market moves higher from there, sure you have lost that increase in value on the bushels sold, but you still have bushels to sell (hence the importance of a scale selling approach) at the next more profitable level. Using the rearview mirror to market-ie: looking at all lower priced sales as mistakes you won't make again-is the easiest way to spend more time beating yourself up instead of focusing on ways to make more profitable sales as you move ahead. Just as we discussed in the last column, focusing on the average price of your bushels sold is a far better approach than focusing on where you started the selling process.

In the end it is important to remember that in times of drastic market moves the noise in the market structure is the highest. Ignoring this noise and focusing on what exactly you're trying to accomplish (staying in business, locking in profit and being able to farm another day) will help not only your mental health, but your operation's health as well.

Keep your guaranteed bushels in mind, use those as a measuring stick on sales progress and move forward accordingly. Above all though do not allow yourself to become married to a position. Many times as soon as an opinion on the market seems the most solid and all are on board spouting the same thing is when the market will shift.

Know things change, embrace the shift, but also maintain a disciplined approach to your marketing as the volatility we are likely to see in the months ahead will make things more difficult rather than easier.

In the meantime if you have any questions don't hesitate to contact Pro Farmer or myself, we are here to help!

You can find Angie on Twitter at @GoddessofGrain or email her.

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.


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