As we roll into 2022, it’s time you may be thinking of your New Year’s resolutions. For a few months out of the year, we’re bombarded with various dieting commercials and advertisements from your local gym about “getting fit”; and we’re hit on all fronts.
But, what about when it comes to your grain marketing fitness? Are you taking the steps to set yourself up for success in 2022 by having a plan to create a stronger balance sheet?
Maybe your goal is to just “do better” or “be better” than last year; but without setting a few goals or defining how you’ll “do better”, you may be left disappointed, falling back into the same old bad habits from the previous year. Starting with a plan and a vision for your bushels for the 2022 marketing year is a must.
The importance of making a plan and writing it down, or putting it in excel, or using software, may feel like you’re beating a dead horse. But, let’s talk about why it’s important to follow through on these steps as you think about hitting your goal of creating a healthier balance sheet in 2022.
Now, obviously, in cycles like these when prices are high, it’s easy to throw the basics out the window. But, with tighter margins this year largely due to increased inputs like fertilizer, going back to the basics may not be as ridiculous as you think.
By writing down your marketing plan, you’re doing a few things, but most importantly you’re being forced to think strategically about crop price risk. A Farm Credit Services of America survey tells us that only about 17% of farmers have a written marketing plan. We know it’s a small percentage of farms, but we think it is critically important to your success. CEOs of successful organizations do not go into the year without a plan to execute upon, or strategy to employ to ensure their success, so why do farmers skip out on this important step?
All that said, if 2022 is the year that you’re going to tackle the 800-pound gorilla, we would like to share some really practical ways to put together a marketing plan and what sort of variables to consider to help you be a better marketer not just in 2022, but permanently.
1. COST OF PRODUCTION
We think every great marketing plan starts with understanding your cost of production. There are a number of good tools and software on the market today to help you track this in a detailed manner. Our advice to you is just to use “something”. It can be excel or cloud-based software but commit to using something other than a piece of paper that gets lost. Then commit to tracking, studying, and understanding your cost of production throughout the year.
2. UNDERSTAND YOUR PERSONAL RESTRAINTS
Next, it’s very important for farmers to understand their personal limitations that come in the form of cash flow needs, storage capacity, logistics, etc. Most farmers have some limitations here and are not free and clear to sell and deliver whenever and however without being a little handcuffed. What might help is reviewing a cash flow statement from the previous growing year to understand where your most significant cash needs are or spending time evaluating your grain delivery capabilities.
3. CROP INSURANCE
We think crop insurance is one of the biggest pillars of a marketing plan. This is the cheapest hedge you will buy as a producer. Understanding what crop insurance is right for you is something your crop insurance agent can help with. Your farm’s situation will dictate what you should choose. Keep in mind locking in your crop insurance decision does not allow you to clean your hands and walk away from your marketing plan, it is simply a starting point. The goal is to free you up to take CONFIDENT actions not lead to inaction. We’ll be sharing more thoughts on crop insurance in another blog post coming soon, so stay tuned.
4. PRICE TARGETS
Set decision dates and price targets for specific percentages of bushels. Price targets are a great way to establish an ROI that is realistic for your farm to achieve. Then when those price targets are hit, pull the trigger and don’t apologize for it. However, it’s important to keep in mind that sometimes price targets are never reached so as a fallback, also establish some decision dates in order to revisit this information. Doing so during seasonally high price patterns is a popular strategy, see the chart below for where these fall by commodity.
Source Chad Hart, Iowa State University Extension
5. USING FUTURES & OPTIONS
Plan for ways to get increased flexibility in your marketing plan. Use futures and options to take profit when it’s available and offer you increased flexibility on delivery locations (logistics). Use an advisor or someone you trust to hold you accountable for taking hedging positions only and avoid speculation. If you were that good at speculating in the markets, I doubt you’d be farming 😉
6. ACCOUNTABILITY PARNTER
Lastly, find an accountability partner. This is very critical to your plan’s overall success. If you are the only one who has seen your marketing plan, it’s not truly cemented in place. Use a business partner, family member, consultant, broker, or anyone who has a vested interest in the price risk of the farm and share your plan with them in order to help hold you accountable and stick to that plan. Discuss the plan on a weekly basis and revise together throughout the growing year as conditions change.
Happy New Year and cheers to building better grain marketing plans in 2022!
P.S. Making a resolution to become a better grain marketer, by building a plan is great, and we are 100% for them and find the best farmers using grain marketing plans, but as the great philosopher Mike Tyson once said: “everyone has a plan until they get punched in the mouth”. We know commodity markets will punch you in the mouth, it is bound to happen. That’s why at Farmers Risk, we are dedicated to creating free tools to make sure farmers don’t fall flat this year, and meet those marketing goals they’ve set for themselves.
To check out our tools for yourself, head to the FarmersRisk.Ag platform to start an account for your farm.
This material should be construed as the solicitation of trading strategies and/or services provided by Farmers Risk Inc. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by Farmers Risk Inc. The trading of derivatives such as futures and options involves substantial risk of loss and you should fully understand those risks prior to trading. Farmers Risk Inc. is not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy.