Selling a crop doesn’t have to be a full time job, nor does it have to be fraught with risk. Having a solid crop marketing plan requires some learning, a little work, and some time, but putting together the following five key tips could translate into tidy profits or reduced losses as you market what you worked so hard to produce.
David Derwin, portfolio manager and investment advisor for PI Financial Corp., breaks down five ways to increase the effectiveness of your marketing plan:
- Use a diverse set of marketing tools: Don’t forget about the basis contract! The basis contract lets you know what the buyers are thinking and can be the key to profitability. Explore all the contract options available to you and know how, why, when, each one works.
- Follow the futures markets: You need to have a basic understanding of what’s happening in the wheat, corn, canola, soy, currency, oil, cattle, interest rate markets etc. Why? Because all these markets influence each other and the signals you need to know may show up in a market you are not targeting.
- Follow the spreads: The difference between the cash price and futures price tells you if the market is willing to pay you to store your grain. But knowing the carry is not enough — stored grain needs to be priced to protect that value. Storage and hedging go hand in hand. There will be a lot of carry at times, sometimes 40, 60, or even 70 cents on a bushel of wheat, for instance, to store it, but you have to lock in the price or you could end up storing the grain for nothing.
- Know what options are and how to use them: Puts and calls are your price insurance. They allow you to protect your price with out committing to sell your grain. Options give you downside risk management. But keep it simple, remember, you are hedging – speculating is a different business.
- Separate currency decisions from commodity decisions: Yes, canola, for example, is priced in Canadian dollars, but the prices of all commodities reflect currency shifts. Canadian farmers have been insulated from a lower commodity prices by a low Canadian dollar, so it is important not to lose that currency advantage.
Ultimately, there are many tools available for farmers to use to either limit downside risk or lock in margin. Get to know them, learn to use them, and protect your bottom line.
Hear more from Derwin in this chat with Shaun Haney recorded for Realag Radio: