Grain Marketing FAQ for Farmers: the Basics

We've prepared general marketing recommendations for U.S. farmers which are absolutely necessary to know and practice.

How to get better at marketing?

Everyone’s marketing skills are different. You must learn and improve yours. Start by learning the marketing lingo and practice. Find a friend to talk about markets until the lingo becomes comfortable in conversation. Consider working with an adviser or service that will help you learn. Let’s cover basic marketing techniques below.

How to get a better cash price?

Cash price = futures + basis. You have to lock-in Basis and Futures price separately as they usually top during different periods.

How to lock-in the basis?

Do a basis contract with your merchandiser or sell for cash & buy futures for the same amount of bushels. You can set (lock-in) the basis with your merchandiser before delivery or at delivery.

When to lock-in the basis?

When it is firmer than usual or when you expect it to weaken for a desired delivery period. Write down and track your local basis bids all year the same day once a week, so you know what is normal. You can use our template: https://www.wrightonthemarket.com/basis-tracker-template

How to lock-in the futures price?

Do a Hedge to Arrive (HTA) contract with your merchandiser or sell futures through your own brokerage account. If you have sold futures, buy them back when you sell for cash.

Should I use my own brokerage account?

Yes, if you would like to have a smaller commission, more marketing flexibility, less hassle, direct control, and it requires less money than a basis contract with your merchandiser. But it takes some practice to properly manage an account, start small to get comfortable with it.

How to make profit?

You are doing business and you have to profit by selling above your crop breakeven price. Therefore, you must know your breakeven. Not every year the price will be profitable as we all have seen recently. So, make sure you are ready to sell ahead and probably more than one year's production upfront when the price is profitable. The futures market and cash grain marketing tools allow it.

What is a breakeven price?

Summarize your crop inputs, land costs, taxes, insurance, machinery cost, labor, etc. Add your minimum living expense, as you should not work for free. Divide that sum by the crop area and divide again by the expected yield. Use that as your breakeven price per bushel when planning your marketing program before planting the crop. After harvest, you can recalculate your cost of production. 

When should I lock the futures price?

Consider four pricing factors: seasonal trend, fundamental outlook (supply & demand), technical price trend, and the breakeven price. If the price is above the breakeven and at least one of three other factors is bearish (expecting a further decline), lock the futures.

How to assess fundamental outlook?

Follow market news to know what is going on with the national and world supply & demand. You need to know how much of the old crop is left at the end of a marketing year (carryover), and whether carryover is expected to be more, less or the same compared to the previous year and the previous few years. If carryover is expected to increase, that is bearish, and vice versa.

How to tell the technical trend?

If the price is making higher highs and higher lows compared to the previous periods – the trend is up/bullish. If the price is making lower lows and lower highs – the trend is down/bearish. Otherwise, it is sideways. Also, you can use technical tools like the Moving Average or the SuperTrend indicator in a charting service. For example, if the 40 day Moving Average is going up – the trend is bullish. The SuperTrend will show you whether the current trend is up or down, but it misjudges during sideways markets.

Is there something else?

Yes, there is just as much money to be made through better marketing as there is through more yield. You can use options, selective hedging, get better in technical chart analysis, and money management, etc. There will always be something to learn. However, you don’t want to overcomplicate things from the start. Implement the above into your operation as soon as possible. Marketing will not get any easier while you wait.

Do I have to do all that on my own?

It is your crop and your business. We do think you have to understand and practice marketing, the more the better. Basic marketing knowledge is crucial for survival of your operations. Merchandiser’s goal is to buy your grain as cheap as possible, futures brokers want you to generate commissions, their opinion is biased, your profit is optional for most of them. We believe that independent marketing services are more trustworthy. Find a service that will help you learn, save your time doing fundamental news research and guide you by saying what they expect from the market, but make your own decisions.

Try our service. We issue compact reports everyday early in the morning covering the most important stuff coupled with an audio version and providing general pricing recommendations. We focus on your education by explaining the markets without overcomplicating things. We have an independent opinion and get paid only for consulting by our customers. We want farmers to profit. The trial period is free, join at: https://www.wrightonthemarket.com/subscribe