Fact Sheets And Publications
Steps for Developing a Grain Marketing Plan
April 2024 | Written by Nate Bruce, Farm Business Management SpecialistÌýÌý
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Developing a grain marketing plan can be difficult,Ìýespecially when grain market prices are constantlyÌýchanging and going through periods of extreme volatilityÌýlike what we’ve seen in the past two years. This factsheet explains back to basic tips on how to make orÌýimprove your grain marketing plan to meet yourÌýoperations marketing objectives.
Take the total you have toÌýmarket and break it downÌýinto smaller sales units.
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Determine your estimated production for the yearÌýand break it down into smaller sales units. An easyÌýmethod to determine your expected production is toÌýuse your Actual Production History (APH) which willÌýbe discussed in more detail. Some of the mostÌýcommon sales units producers use are in 1,000-5,000Ìýbushel increments or the quantity they know is oneÌýtractor-trailer load. If pre-harvest marketing, neverÌýsell more than you have insured. You do not have toÌýsell any bushels prior to harvest, but often, higherÌýprice opportunities will occur. To calculate how manyÌýbushels you have insured, multiply the APH by theÌýnumber of acres of the commodity you plan to plantÌýin each field. This value is your expected production.Ìý
Next, simply multiply the expected production by theÌýinsurance rate. So, for example, you have a 300-acreÌýcorn field with an APH of 220 bushels per acre and aÌý75% insurance rate. The expected production isÌý66,000 bushels (300 acres x 220 bushels/acre). TheÌýinsured amount of bushels from this field is 49,500Ìý(66,000 bushels x 0.75 insurance rate). If you were toÌýbreak down your insured bushels into sales units ofÌý5,000 bushels, you’d have roughly 10 sales unitsÌý(49,500 insured bushels / 5,000 bushel sales units). InÌýthis example, you would have 10 sales units in theÌýpre-harvest market. If post-harvest marketing, youÌýonly can sell grain that is unpriced in storage.
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Set price points
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Determining the average price you want to sell yourÌýgrain is important. At the very minimum, price targetsÌý(both pre-harvest and post-harvest) need to exceedÌýyour established cash flow price. Setting realisticÌýexpectations in determining your price targets isÌýextremely important. Setting price targets that are tooÌýlow or too high can have a negative impact on yourÌýmarketing plan. Let’s say for example you determineÌýthe average corn price you want to obtain is $5.50 perÌýbushel. You would have to sell five equal quantities ofÌý$5.30, $5.40, $5.50, $5.60, and $5.70 to achieve yourÌýprice target. When you set an average commodityÌýprice target, making changes year over year to yourÌýmarketing plan is easier because you can see how youÌýsold grain in the past and improve your marketingÌýplan moving forward. For pre-harvest price targets,Ìýyou must ensure the grain price is greater than yourÌýcost of production. For post-harvest price targets, youÌýmust set them above the price you could haveÌýobtained at harvest, plus any additional storageÌýexpenses such as bin rental, interest expenses, orÌýinsurance on storage.
Set sales deadlines
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Grain prices are constantly changing and may becomeÌýlower or higher than your price target. SomeÌýcommodity prices have seasonal patterns such as cornÌýprices being highest in the spring (March-June) andÌýsoybean prices highest in the summer (June-July).ÌýSetting deadlines to make sales and be proactive isÌýessential to ensure you achieve your price target.
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Know your marketing tools
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Several different types of contracts exist for you toÌýsell grain. Make sure to understand all these contractÌýoptions by consulting with either your local elevatorÌýor broker. The most common marketing contractsÌýoffered by most elevators are cash sales, forward cashÌýcontracts, and hedge-to-arrive contracts. You can alsoÌýutilize options such as puts, calls, and hedges byÌýworking with a broker. It is imperative to understandÌýall the marketing tools that are available to you andÌýdetermine which ones fit your marketing plan theÌýbest.
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Share your plan withÌýsomeone else
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After writing your marketing plan and determiningÌýyour course of action, share your plan with someoneÌýelse, whether that be a spouse, lender, purchaser, orÌýlocal farmer group. Sharing your plan will keep youÌýaccountable for your marketing objectives.
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Conclusion
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Grain marketing is complex because prices are alwaysÌýa moving target. Having a marketing plan in place canÌýhelp create realistic goals to navigate market volatility.ÌýThe beginning of every crop cycle is one of the bestÌýtimes to create or review your marketing plan andÌýadjust. These tips can help you create your marketingÌýplan or modify your current one.
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