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Survey: Marketing & farm size

DANIEL LOOKER 11/06/2013 @ 11:17am Business Editor

Gerry Bade, who grows corn, soybeans and alfalfa, and raises beef cattle in Minnesota, is typical of 1,100 producers who took the Successful Farming® Benchmark Marketing Survey this year.

For Bade, cash marketing is king.

“Normally, what I do is sell my grain after the first of the year. Usually the first week in January is when it gets a rally,” says Bade has used this method for more than 20 years. He has almost always been pleased with it. In 2014, with corn prices low, he plans to feed more to cattle.

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His farm is midrange in size, he feels good about his marketing ability, and he falls into the 52% majority who want to “get a little bit better price.”

Using all of the tools

As the survey also shows, farm size makes a difference. More of the largest farms see marketing as risk management, not price enhancement, and they use more futures, options, and other tools.

Among farms over 1,000 acres, 47% use options, 42% use basis contracts, and 54% use hedge-to-arrive contracts.

Some of this surprised University of Illinois economist Darrell Good, one of the survey advisers. “I thought basis contracts were pretty rare,” he says.

Iowa State University economist Chad Hart says, “Options are the one that surprised me.” One possible reason is, he says, “a lot more people are becoming more comfortable with options because of their experience with the federal crop insurance program.” Revenue insurance is, essentially, a government-supported put option.

The volume of grain sold with futures alone remains small – just 9% of the corn, beans, and wheat the entire group sells.

Frayne Olson, a North Dakota State University economist who once farmed in that state, says, “It does match fairly closely with what I’ve observed.” Out of an array of marketing tools, not all work best in all conditions. “Do you have to use a futures contract for all of your marketing? The simple answer is no. It’s easier to dabble in these things and give it a test run.”


Price vs. Risk Management

A key question in the survey, meant as a benchmark, was whether you market to enhance price or to balance risk.

“I think if you’d asked that question 10 years ago, you might have gotten more ‘enhance price’ responses,” Good says. “I think farmers have discovered how hard it is to beat the market.”

Hart expects more changes. “They’re confident in their ability to market and use a number of tools. My guess is that the use of these tools will grow,” he says.

Hart is pleased that a big majority who use futures (58.9%) say it’s to gain a better basis. That is something even more attainable in areas where ethanol and livestock production have expanded, adds Olson.

The top reason against using futures is positive: Farmers like working with their elevator merchandiser. Mistrust of brokers and worry about clearing firm failure are troubling, though, Hart says. “You can see the damage that has occurred in the futures market due to events like M.F. Global,” he says. “The marketing system has to figure out how to make that fear factor decline.”

Survey adviser Steve Wellman, who farms near Syracuse, Nebraska, says he’s not surprised larger farmers focus more on risk and smaller ones use futures less, since 5,000-bushel contracts can limit choices with less grain to sell.

Purdue University economist Chris Hurt, also a survey adviser, sees upbeat data. “Contrary to coffee shop chatter, producers have an overall positive feeling about their marketing of crops and livestock,” he says. “They know marketing is just one of the functions to help meet their bigger goals.”


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