By Mike Surbrugg
LAMAR, Mo. - About the only certain thing when it comes to grain market strategies is uncertainty.
No two farmers are alike when it comes to risking what the farm produces.
A recent meeting at Lamar had a tongue-in-cheek title: "Buy Cheap-Sell High." What is cheap and what is high are something each farmer must decide.
Among speakers were Joe Pace, an agriculture teacher at Lamar and a farmer; David Whitson, University of Missouri Extension agriculture business specialist at Neosho, and Jesse Medlin, manager of the MFA grain elevator at Lamar.
Pace said the futures market can enable a producer to capture good prices two years ahead of when the crop will be planted. An example is the outlook for strong 2008 wheat prices. He suggested some farmers may want to "lock in" 25 percent to a third of the farm's 2008 expected wheat production.
Those involved in futures or other marketing strategies need to recognize opportunity and act to eliminate emotion or greed. "If you can lock in a profit you can live with, take action," he said.
Pace provided several printed pages of explanations of marketing terms and how they could be used.
Whitson said there are a lot of alternatives on how to market farm produce and farmers differ on which approach to take. But, farmers need to produce to have something to sell, he said.
Before any marketing plan can be set, each farmer needs to know his cost of production and then look at normal yield and prices to seek for a profit, he said. And, there is still room for dumb luck.
He cited an example of when soybeans were $12 a bushel in the early 1970s. A farmer in another state just did not get around to harvesting his soybeans for various reasons until February, when he brought his crop to the local elevator. That was the peak price for the year, Whitson said.
Most farmers work long and hard to raise the grain they put in their bins and find it hard to sell. "There may be instances when somebody other than the producer needs to be in charge of marketing," he said.
The future's market fills a role of price discovery and risk transfer, he said. It is speculators in the market who put their money on the line. Whitson warned that farmers can become speculators to hold out for buying at lower prices or selling at higher prices. Danger to the farm can be on paper, he said.
"You should speculate only if you have money to lose," he said.
After talking about different market options and terms, he said each farmer must know what risk he or she is willing to take.
"You probably should work with a broker and lender who understands agriculture," Whitson said.
For every dollar made on the Board of Trade, somebody is losing a dollar. "It has been said that for every dollar a person makes on the Board of Trade, nine others have lost part of that dollar," he said.
Medlin said often farmers have no marketing plan until delivering grain to the elevator during harvest. "Most tell me they are afraid to price grain too soon or too cheap," he said.
He recommended to set a target price you want and be happy if you get it and not worry about the market still going higher. Medlin said he does not know when a peak grain price will be hit.
Farmers should not count on grain markets reacting to local weather conditions. "We are in a world market," he said.
Medlin is working with marketing arrangements with farmers for 2007 and 2008 corn and wheat. He warned the worst thing a farmer can do is to hold corn rather than sell it for $3.50 a bushel and then have to sell at $2.50 a bushel.
He advised farmers able to lock in $5 (per bushel) wheat for July 2007 delivery to act. A lot of wheat has been planted this fall and a lot of processors will not pay the high price unless they need wheat, he said.
Some poultry operations are looking at reducing production in face of higher grain prices, he said.
There are a lot of "ifs" in most marketing strategies, he said.
The elevator manager said he is not a fan of grain storage. "You work for your grain and it does not work for you in storage," he said.
His message is for grain farmers to talk now with their elevator managers about options each might provide for marketing grain.
By Mike Surbrugg
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