Your midsummer market review
I need help with my marketing. Every corn and soybean sale I make has gone against me,” was the first comment from a farmer at a seminar in early April in western Minnesota. He wanted to know how I could help him make better decisions.
December 2012 CBOT corn
I had him fill out a marketing profile that showed how many acres he had, what his yields were, and where he sold his grain. His responses helped me evaluate which of my marketing services would work best for him.
When I looked at his results, I thought he had done a pretty good job. He'd sold some soybeans ahead last summer at a good price level but had panicked and sold too much after the bearish USDA reports in January. Then he wrapped up his sales when nearby corn futures rallied to $6.40 and nearby soybean futures rallied to $13. I told him he'd done a pretty good job, but I could help him avoid panicking when prices were low.
I look at the time span for marketing crops 18 months before harvest and six months after. I then do periodic reviews of a farm's profit-and-loss potential. Right now, we're entering the fourth quarter for getting the 2011 crop sold; we're in the second quarter for the 2012 crop; and I'm just starting to evaluate margins for 2013. For 2013, the margins are very tight.
Control the bottom line
Over three decades of working with farmers, I've noticed that producers would make really good profits for two or three years in each decade, break even for about five years, and then lose some money for two or three years. It was important to set some money aside in the good years to help get through the lean ones.
Looking ahead for 2012 and especially into 2013, I see much smaller operating margins. With higher operating costs and the cutbacks in the farm program payments, there is also more financial risk than ever. I'm not forecasting a crash in farm profits or land values like in the mid-1980s. I do anticipate a time period when costs go up faster than gross, which will squeeze a farm's bottom line.
4 strategies for success
In today's environment, making better marketing decisions is more important than ever. The decisions you make in the next three months will have a large impact on your farm's profits for 2012 and 2013.
To be successful in your marketing, execute these four strategies to take control of your bottom line.
1. Get real. The odds of having profit margins in 2012 and 2013 like you had for your 2010 and 2011 crops are somewhere between slim and none. Plan accordingly and lock in the positive margins when they're available.
2. Stay consistent. If you sold ahead 30% to 50% of your crops the last two years, you weren't always happy with the results at harvest. On the other hand, if the day you made the sale you were also locking in a good margin, then keep at it.