Center for Farm Financial Management
 
 

Celebrity Grain Marketing Plans

Each of my celebrity friends prices grain in a different manner.  You can think of their different approaches as simple marketing plans. I want to know if any of them are better at capturing pre-harvest and post-harvest pricing opportunties. Let’s meet my celebrity producers, and learn more about their approach to marketing grain.

 

Summary Plans

Summary and Comparison of Celebrity Producer Results (before and after harvest, 1990 forward)

Barney Binless (pre and post-harvest marketing)

Barney has no interest in marketing grain before harvest, and no storage capacity for holding grain after harvest. Barney’s price is the price at harvest each year, and serves as a benchmark for comparison of other marketing approaches. Every year Barney Binless gets the cash price for corn and soybeans that falls on the Friday between October 12 and 18. For spring wheat, his harvest price is recorded on the Friday between August 20 and 26

Grandma (pre-harvest marketing)

Grandma likes to keep her marketing plan simple. She prices 10% of her expected new crop corn, soybeans and spring wheat each month from January through July. Her pre-harvest sales total 70% of her expected crop. She is so dedicated to her simple approach that she makes each sale regardless of price.

Grandma sells December corn futures, November soybean futures and September spring wheat futures each Tuesday between the 4th and 10th of each month (January through July). Futures prices are converted to cash prices using the actual harvest basis each year. For corn and soybeans, the harvest basis is defined as the cash price less the futures price on the Friday that falls between October 12 and 18. For spring wheat, the harvest basis is defined as the cash price less the futures price on the Friday that falls between August 20 and 26.

 

Justin Price (pre-harvest marketing)

Justin knows his cost of production. Each year, he establishes new price objectives based on his production costs. For example, for corn produced in 2010, he sells 25% increments at prices of $4.05, $4.55 and $5.05 in the December futures contract. For soybeans in 2010, Justin sells 25% increments at prices of $9.05, $10.05 and $11.05 in the November futures contract. For hard red spring wheat, he sells 25% increments at prices of $5.60, $6.10 and $6.60 in the September futures contract. For all commodities, he sells up to 75% of his expected crop pre-harvest, if all three price objectives are met.

Justin’s pricing is longer than any other celebrity producer. He is willing to start pricing new crop grain as early as 1 year prior to harvest, defined as November 1 for corn and soybeans, and September 1 for spring wheat. Using his 2011 corn crop as an example, Justin will start on November 1 of 2010, and he will stand ready to sell at his price objectives right up to “harvest,” or Friday, October 14, 2011.

 

Terry Timer (pre-harvest marketing)

Terry times her sales by pricing 25% of her expected production in March, April and May, for a total of up to 75% sold. Terry is keenly aware of the seasonal tendency for new crop futures to be at their highest in the March to May period. While her approach seems similar to Grandma’s marketing style, there is an important distinction. Unlike Grandma, who makes sales regardless of price, Terry is unwilling to make a sale if prices are below her minimum price objective. Terry’s minimum pricing objectives are based on production costs and the same ones used by Justin Price.

Terry prices her grain with the futures market on the Tuesday that falls between the 4th and 10th of each month in March, April and May. Her cash price is calculated later, using the actual harvest basis on the Friday that falls between October 12 and October 18 (or the Friday that falls between August 20 and 26 for spring wheat). If prices are below her minimum when her pricing date arrives, she will not make the sale. Terry is willing to make catch-up sales until the end of May, but makes no more sales after May 31.

 

Peter Paperfarmer (pre and post-harvest marketing)

Before harvest, Peter likes Terry Timer’s approach to pricing, making sales in March, April and May, at the same price as Terry. But Peter also likes to keep his “options” open for the possibility of higher prices in the growing season. Peter re-owns each new crop sale with the purchase of an at-the-money call option on new crop futures (December corn, November soybeans or September spring wheat). By harvest, Peter’s price will be the same as Terry’s price, plus any profit or loss from buying an at-the-money call option and selling it on September 15 (for December corn or November soybeans) or at expiration for September spring wheat options (about August 20).

After harvest, Peter is like Barney Binless - no on-farm storage and forced to sell his grain at harvest. However, Peter re-owns his corn and soybean crops on November 1, with the purchase of an at-the-money July call options (May call options on September 1 for wheat). Peter maintains his option position until expiration (mid-June for corn and soybean options, mid-April for wheat). By the following spring, Peter’s price will be the same as Barney’s price, plus any profit or loss from buying at-the-money call options and selling them at expiration.

Darla Discipline (pre-harvest marketing)

Darla uses a blended approach that incorporates Justin’s price objectives and Terry’s decision dates for pricing. Her plan starts 1 year in advance of harvest (like Justin’s), and she makes pre-harvest sales whenever a price objective or decision date is reached, whichever comes first. Darla also uses the same minimum pricing objectives as Terry and Justin. Terry and Darla differ in one important respect: while Terry is unwilling to make any sales after May 31, Darla is willing to make “catch-up” sales during the summer.

 

Sally Sellthecary (post-harvest marketing)

Sally "sells the carry" when carrying charge is greater than 140% of interest costs at harvest. To sell the carry in corn or soybeans, she places her crop into on-farm storage and sells July futures on the Friday between October 12-18. She lifts the hedge (buys back July futures and sells cash grain) on the Friday between May 25-31. In wheat, she places her crop into on-farm storage and sells March futures on the Friday between August 20-26. She lifts the hedge (buys back March futures and sells cash grain) on the Friday between December 1-7. Her price from the storage hedge is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

If carrying charges are small at harvest (less than 140% of interest costs), she sells her grain at harvest, just like her neighbor Barney Binless.

 

May Sellers (post-harvest marketing)

After harvest, May holds her grain unpriced in on-farm storage. She sells her corn and soybeans on the Friday between May 25-31. She sells her wheat on the Friday between December 1-7. Her final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

 

Earl Eitheror (post-harvest marketing)

Earl mimics Sally or May, depending on the size of market carrying charges at harvest. When the carrying charge is greater than 140% of interest costs, Earl sells the carry (like Sally). When the carrying charge is less than 140% of interest costs, Earl holds grain to sell in the spring (like May). Prices are calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

 

Hank Holder (post-harvest marketing)

After harvest, Hank holds his grain unpriced in on-farm storage. Ever the price optimist, Hank holds his grain in storage too long, and he is forced to sell his grain just before the following harvest, to free up storage for his next crop. He finally sells his cash corn and soybeans on the Friday between October 1-7. He sells his wheat on the Friday between August 20-26. His final price is calculated net of a full year of on-farm storage costs (interest plus an in/out handling and shrink charge).

 

Margery the Fortune Teller (pre and post-harvest marketing)

Before harvest, Margery uses her crystal ball to forecast the highest price in the year ahead. She sells the highest price for December corn, November soybeans or September spring wheat in the year before harvest (For corn and soybeans starting November 1 of the prior year, and up to September 30. For wheat starting September 1 of the prior year, and up to August 20).

At harvest, Margery stores grain on-farm and uses her crystal ball to forecast the highest cash price in the year ahead. She sells the highest cash price during the year after harvest (based on weekly cash price data starting October 1 and up to September 30 of the next year for corn and soybeans. Starting September 1 and up to August 31 of the next year for spring wheat). Her final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

Wally Whipsaw (pre and post-harvest marketing)

Wally uses 20/20 hindsight to make pre and post harvest sales this year when he should have sold last year, based on the high price in the previous year (per Margery). For sales after harvest, his final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

 

Rocky Bottom (pre-harvest marketing)

Rocky is a hard luck marketer - always managing to sell the low price in the market. He sells the lowest price for December corn, November soybeans or September spring wheat in the year before harvest (For corn and soybeans starting November 1 of the prior year, and up to September 30. For wheat starting September 1 of the prior year, and up to August 20).

 
 

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