Angie Maguire spent her life on a farm before returning to agriculture from a cash grain perspective. Her years of experience running a diverse and unique direct ship cash grain program, coupled with her current position as the Vice President of Grain for Citizens LLC in Charlotte, MI has given her an in-depth understanding of basis, spreads and futures. This knowledge and experience translates into her ability to help her customers see the flow of cash grain and prices, maximizing margins and returning solid results. "Cash is King" focuses on the developments in the cash market, as well as ways you can take advantage of potential opportunities as they develop. Angie is known as the @GoddessofGrain on Twitter.
That's Some Nice Margin You Have There: Cash Marketing Missteps and How to Avoid Them
I paid $1.85 for the first bushel of corn I bought. In the following years I've paid anywhere from $1.50 up to nearly $9.50 for corn... soybeans and wheat have seen the same type of crazy price ranges. Over the last decade we have seen whiplash inducing rallies and heart crushing market collapses. And through it all, oddly enough, the only thing that seems to remain constant are the missteps taken when it comes to marketing cash grain.
We all do it (include myself). As a company we handle around 11 million bushels of cash grain a year and it's my responsibility to market those bushels. I too fall into the pitfalls I'm going to discuss today; I'm talking to myself just as I'm talking to you. I guess the first step is admittance right? So let's be honest with ourselves and work to rid our marketing plans of these hiccups.
Shooting for the top: It's human nature to want to be the best. The last thing anyone wants to admit to themselves -- or anyone else -- is that they could have done better. We do the same in marketing. "What was the high I could have got on that?" is a question I hear nearly daily. Leaving money on the table is a no-no of course, so why on earth would you sell 5 cents below the old high? It's called sacrificing dollars for pennies, and if I had a nickel for every time I saw an order miss by a measly half cent I would be writing this from an undisclosed location while sipping on fruity drinks.
Selling every bushel at once: Averages aren't bad. Especially averages when you're making money, I promise. Not only do we want the highest price, we want every last bushels sold at that price. Any bushels sold for less than the absolute high are a disappointment and further validation that you were wrong in your marketing decisions. In reality, you can't scale sell if the market doesn't move higher. Selling percentage-based increments will allow you to capture rallies while building that solid average price.
Placing too much focus on the pieces of the cash contract: "What's the basis on that?" Let's face it, if you have no open futures-only contracts you're looking to price the cash price is all that really matters (unless we're looking at basis only opportunities -- but humor me here). Cash sales are like sausage. If the sausage tastes good do you ask which parts of the pig it includes? Not generally, and the same can be said for cash corn. If you were wanting 5 dollar corn and it's 5 dollars, does it matter if it's 15 over or 15 under in the end?
Marketing from your checkbook: "But I don't need the cash," are the most dreaded words in the English language. Who doesn't need cash!? Or at the very least why would you not take advantage of a good price just because you're looking at a flush wallet? That'd be like me telling my boss to withhold my paycheck because I don't need it right now. That will never happen, and it shouldn't in your operation either. There are ways to maneuver around the delicate cash flow issues you may have-not selling shouldn't be one of them.
Good 'til close orders: If it was a good idea when prices were 20 cents cheaper, it's probably still a good idea now. Just because the market is giving it to you doesn't mean it is too good to be true. Cancelling an order in the midst of a rally and not at the very least replacing it leaves you open to emotionality and most likely in the end, a missed opportunity. Don't get me wrong, when situations change (like a once in a lifetime Corn Belt-wide drought as seen in 2012) reevaluating and adjusting orders is not out of line. Just make sure you aren't cancelling simply because it's close and are afraid you're going to miss the top.
Storing grain pays: With the recent additions of storage space throughout the country bins don't always guarantee payout. When looking at whether or not to store your grain first take a look at harvest or nearby values for unpriced grain. Is the cash price what you're looking for? Look to your carry or lack thereof. Is the market inverted? Is the cash price the same or less for deferred sales? Remember not having your money, risking quality and grain shrink costs money. If nearby delivery is $4.50 and delivery 4 months out is $4.55 your money's better off in your pocket than sitting in the bin waiting to be shipped.
But I've always done it this way: Every year is different and your approach to marketing should change accordingly. Superstition is for playoff baseball and black cats. Doing something different will not cause your hair to fall out, promise. Make sure you aren't missing opportunities just because you've never moved cash corn in May or sold bushels on the 13th of the month. Keep your focus on profitability.
Putting too much emphasis on the before: Yes, those that forget history are doomed to repeat it, but refusing to make a sale because last year we saw a dollar rally in July or because the basis was X two years ago is not healthy for your bank account. Every year is different and every market is different as well. Yes, you do want to be aware of historical tendencies, but you have to be honest with yourself as well. If there's corn in bins throughout your neighborhood and your ethanol plant is full it is highly unlikely you will see a repeat of last year's supply pinched basis levels or market moves.
No plan: Do you go into planting by hooking the planter up and seeing what happens? I doubt it. So why would you do something similar with your grain marketing? Not knowing what your cost of production and target margin is will have your operating in the dark. Determining these two points first and foremost will help make sound decisions when it comes to scale selling as we move through the marketing year.
Only listening to market insight that validates your opinion: Believe me, I read market analysis like I watch football. There are times when I agree whole heartedly and times where I want to throw my computer out the window. But I've found over the years that sometimes the advice that most made me want to pull my hair out gave me a perspective I wasn't expecting, or a view of the market I wasn't seeing. Make sure you don't approach the market with tunnel vision. Remember most generally the market is ready to turn when everyone agrees, so make sure you keep room for a few naysayers in your knowledge pool.
In the end these are no fatal errors. Committing them will not guarantee you will be living in a van down by the river, but they will trip you up when it comes to profitability. As I said the first step is admitting, once you're aware of the issue at hand you're able to improve upon it. Together the goal will be to rid ourselves of these bad habits and reward ourselves with better margins and increased profitability.
You can find Angie on Twitter at @GoddessofGrain or email her.