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Who Is the Market Punishing?

07/18/2014 @ 3:21pm

One of my favorite sayings from the “Murphy’s Laws” poster states, “The market punishes those who make mistakes." To those individuals who have never been challenged to make a marketing decision, this little saying probably does not have much meaning. To those of us for whom marketing is an everyday occurrence, it probably brings back memories that we would prefer to forget.

Early in my farming career it seemed as if every decision that involved determining the price on a batch of soybeans or corn turned out to be punishment before it was over. Now that I am several decades past my early-learning period, I find that the periods of punishment are much shorter. The times of sheer joy are more frequent and more rewarding.

After 34 years of research and doing marketing workshops, it would seem as if there would no longer be farmers who struggle with being good marketers. Surely anyone who has persisted that long should have marketing down to a science. Can there really be anyone left in the country who has not mastered the ability to put negative psychology behind and make a good decision every time? Unfortunately, the answer apparently is that unprofitable decisions are still being made.

That issue was brought to my mind with the tornado in Pilger, Nebraska, on June 16. Aerial views of the tornado-damaged areas showed grain bins with the roofs torn off that were still full of corn. Similar pictures of grain storage facilities in other towns also showed a lot of corn spilled that could have been sold long ago. With the drop-dead date of July 1 just two weeks away, at the very least, most of the corn in elevator storage should have been down to the last few bushels.

When I think back to my own situation, it is easier to avoid blaming individuals who were slow to pull the trigger. The short crop of 2013 caused by drought made it tempting to store for just a few pennies more. My target price of $5 was never quite reached.  As spring turned into summer, it was more and more difficult to accept a price that was barely over the cost of production.  

My experience over many years told me to not be greedy but to sell when the calendar said to, regardless of the price. When the wind took the roofs off the bins in northeast Nebraska, my bins were already empty. I was not happy with the price. I was even less happy that my system seemed to be not working as well as usual. The recent government report shows that there are a lot of bushels still in farm storage. The question becomes, “Who is getting punished?”

When I swept the last few bushels out of the bins, the price had dropped 49 cents from the previous big sale. No doubt, some farmers are experiencing a lot of sleepless nights wondering where the 2014 crop is going to find a home. Those who know say that this is the best-looking corn crop they have ever seen. There will be room for it somewhere. My local elevator is preparing a pad to dump corn outside. That is not a good answer for grain that should have been priced a month ago. No doubt there will be punishment for farmers who store on the pad in the form of poor basis. 

The current cash bid is below the cost of production. If the land cost is left out of the equation, there is still the possibility of getting back most or all of the variable cost. Selling to get back some of the fixed cost is not a long-term solution. However, it may be necessary until demand builds up again; or until the weather brings another short crop.

At one of the very first marketing workshops I did back in the 1980s, I was taken to task by a farmer in the audience. He said I was misleading the farmers there because soybeans would never again reach $5 a bushel. My response was that prices go up and down. They always have. They always will. I hope that there is not too much punishment along the way. 

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Commodity pricing differences in Organic markets 07/21/2014 @ 12:59am I often read with amazement and concern how so many growers plant crops with no idea what they will be paid for it at harvest. As an Organic grain and dry bean contractor, my growers know exactly what they will be paid a full year in advance of harvest. They are also part of the contract negotiations. We tell our customers what the growers are being paid too. The growers are told what our sales price will be. It is my sincere belief that reintroducing a personal element to pricing is good for everyone involved. Organic black beans pay the grower $0.85/lb this year and our growers average over 2500 lb per acre. as an example.

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