As for-profit businesses, the primary goal of any farm is to maximize profits.
Now, how aggressively a farmer wants to maximize those profits will depend on that person’s financial, professional and personal goals.
Some farmers, like owners of other types of businesses, are OK with the size of their operation and aren’t looking to expand. On the other hand, there are farmers or investors who want to see their operations grow when the opportunity is right.
One major part of any crop-growing farm operation that plays a large role in determining how much profit is generated is grain marketing. Every grain farmer out there needs to understand grain marketing to find the best possible selling price for their bushels.
The problem is that grain marketing as a concept is straightforward, but in practice it is often quite complicated. For a variety of factors that we’ll touch on here, finding the best price possible that will generate a healthy profit is by no means easy.
Here, we’ll break down grain marketing and a bit more of what all it entails – and how a farm manager may be your best bet to achieving the profit level that helps you accomplish your own goals.
What is Grain Marketing?
Farmers know what grain marketing is, but a simple definition can be helpful. In short, grain marketing is how farmers sell the crops that they grow. The practice also lets farmers grow their crop on a large scale to a range of customers.
Much of grain marketing and the prices that they reach are dictated by supply and demand. Each different grain, which includes everything from corn, oats, wheat, soybeans and more, often follows a cycle of price levels that ebbs and flows in a pattern each year.
Of course, other outside factors, including the weather in any given location across the globe, can affect the grain market significantly.
Cash Prices vs. Futures Prices
From a global perspective, much of grain marketing is dependent on futures contracts, which are documents that lay out how much grain and the price per bushel that will be delivered and paid in the future. Whether or not that pays off in either party’s favor depends on many factors, sometimes those outside of anyone’s control, again, such as the weather.
But then there’s also the cash price at the local cash market, which would be grain elevators near the farmer. This is where the farmer’s grain is actually sold.
The cash price is a value that is either agreed upon for delivery of the grain or it could also be the farmer accepting the current price for the grain that was delivered at an earlier date but not sold. Unlike a futures contract, there isn’t a set amount of grain to be delivered.
Although a cash price delivery is one way for the farmer to get cash quickly, timing the delivery correctly can be a challenge during the busy harvest season.
How Cash prices and Futures Prices are Related
Futures prices influence cash prices, but to reach that dollar value, you first have to understand what’s called the basis.
The basis is the difference between whatever the cash price is currently and the futures price that is closest to reaching its expiration date. To calculate the cash price, you take the future price plus the basis.
Now, it’s important to understand that the basis could be a negative value because of local conditions, including transportation, storage, interest among others. If the basis is “strong,” then that means the difference between cash and future prices is small or narrow. On the other hand, a weak basis means the difference between cash prices and future prices is large or wide.
Farmers should track the local basis on a consistent schedule so that they can pay attention to when it’s a good time to market some of their crop. With a strong basis, the price being offered is probably at a better point than could be expected. However, a weak local basis means the market doesn’t have the demand for the grain at the moment.
What Does it Take to be Successful with Grain Marketing?
Successful grain marketing is determined by many factors, but one of the most important is knowing the cost of production for your farm. This information at least gives you a break even point when looking at what price you need to sell grain.
Farmers who keep their cost of production in mind know what price they absolutely need to sell at to be successful, and they also can weigh the risks of holding out in hopes for better pricing if they pass up a certain opportunity to sell.
But again, this is where grain marketing can become more complicated. Accurately determining your cost of production can be hard without some knowledge or assistance.
Farmers should also consider developing a marketing plan that details all the factors pointing toward when to sell their grain. A good marketing plan should include the price the farmer would like to sell at, the targeted date of the sale and how much grain you want to sell.
How Farm Managers Make Life Easier for Farmers
If all of this sounds daunting, don’t worry. Sure, it’s a lot of information to track and not always easy to follow.
Luckily, this is where many farm management service providers can jump in and help farmers or landowners who are leasing farmland make the most profit from their operation.
For example, at Stalcup Ag Service, our team has the tools and knowledge needed to make sure you have a solid grain marketing plan that leads to success. Our team understands how grain has performed in the past, combined with knowledge of current pricing, world conditions and market psychology.
Finally, we consider what you need as far as cash flow.
At the end of the day, Stalcup connects you with experts who can handle cash sales, forward contracts, put or call options, no-basis established contracts. We’ll even help develop an on-farm grain storage plan for your farm so that costs can be controlled and the time you sell is also flexible.
Interested in partnering with us? Contact Stalcup online today.
