If you’re still learning the marketing side of the farm operation, have you ever asked your farmer this question:
“Why didn’t you sell grain today?”
It doesn’t matter whether the market price was up or down or whether it’s corn, beans, cattle or hogs.
Just ask him, “Why didn’t you sell today?”
If the market went down, I’m 99% sure you will get the following response:
“I didn’t sell because the market went down today.”
On the surface, that seems logical. Relate it to any investment–a house, a car or a share of stock–no one likes to sell on a down day. However, some very successful marketers have done their best marketing by selling the first day the market turns down after it’s been rallying. Why? Because it takes a lot of discipline to catch the market on the way down and if you sit and wait for it to go back up, you might be waiting an awfully long time. Would you rather sell the day after the market hits it’s high when it closes $.06 lower than the previous day, or would you rather watch the market fall over the next month and have to sell at a level $.50 lower because it never did retest the high?
Now, let’s say you ask the same question, “Why didn’t you sell grain today?,” on a day the market finished higher than the previous day. The answer you’ll probably receive is:
“I think it’s going higher tomorrow.”
And like a broken record, there’s that farmer optimism. No matter where the market is or why it’s at that level, “it’s always going higher.” News flash, it doesn’t ‘always go higher’.
Now, let’s be clear, deciding not to sell today isn’t a bad decision.
The part of the response that does matter is the REASON the sale was not made.
Had he said, “I didn’t sell because the cash price is still below our breakeven. I also read an article this morning that’s forecasting a drought in South America, so I think we could see prices rise over the next couple of weeks depending on the weather reports.” Now THAT is a good answer and one that you both can discuss.
Takeaways:
- Know your breakeven and profit goal and be sure it’s up to date. This is the most important piece in helping determine whether or not a sale today is a good one for your operation. Calculate your per bushel breakeven and per bushel price that will allow you to meet your profit goal. Know these so you know what cash prices you are looking for. The conversation will go very differently if you can discuss the current price and profitability at that level if your farmer responds with a simple answer to your question of: “Why didn’t you sell grain today?” Unless he has a lot of news or information backing his reason he thinks the market will go up tomorrow, a sale that meets your profit target is not one you will regret.
- Track the cash price at your local grain buyer(s) that you deliver to so you stay up to date on price trends. Pro tip: keep a link to each grain buyer’s bid sheet in your web browser’s favorites for quick access. This exercise shouldn’t be tedious! I personally like using an excel sheet to track each component (futures, basis and cash) of price daily to better understand how each moves and begin to see trends. The sooner you start, the sooner you will be able to see patterns in price movements in certain times of the year. After tracking prices and comparing them for a couple months, you’ll be surprised how much more familiar you are with the markets, the grain buyers, and how each price component works together.