Precision grain marketing

While planting last week I looked at all the technology in the tractor cab, as auto-steer guided me down the field. It amazed me how sophisticated precision planting is. Farmers now use technology that puts the ideal number of seeds based upon field conditions with such precision to optimize yield. Despite how complex and complicated the technology is, it has become quite popular as more farmers are using it.

It made me think about the basic principles of our farm’s grain marketing strategy. It has a lot of similarities to precision planting that I should be calling it “precision grain marketing.”

Precision planting takes historical data that matches up many variables (i.e. the right hybrid, seed trait, seed count, etc) to maximize farmers’ yield potential. Why don’t farmers extend this level of attention to maximize their grain marketing profits too?

Within grain marketing there are three basic facets that work independently of each other — futures prices, basis and market carry. Maximizing the potential of each one means more profits for farmers (just like precision planting increases bushels and yield).

“But, I think I do a good job with my marketing already, so I don’t see a need to change what I’m doing.”

I hear this statement all the time from farmers. To some extent, they may be right. These farmers may have done well with futures pricing in the past. But, they don’t realize that thinking this way is like using planting technology from 10 years ago. It does a good enough job. A farmer can still raise a crop this way. But, will you be maximizing your yield to its full potential? No. Few farmers would say that yields or cost savings with and without precision planting technology are basically the same anymore. So, why say that about your grain marketing?

Basis and market carry are the “precision technology” components to grain marketing. It’s fine tuning the entire process to take advantage of all possible potential.

So as you finish planting, and you hit the auto-steer button, think about the increased yield you receive with this technology. Is it around a 10% bump in profits? It’s hard to know the exact figure (and it will vary year to year), but farmers know it does maximize their potential yield. Farmers who use basis and market carry to optimize their grain marketing strategy can expect a similar type of bump in profits as well. Sometimes more. Precision marketing will add profits to every farmer’s marketing program, regardless of how good you are at picking futures prices.

Jon grew up raising corn and soybeans on a farm near Beatrice, NE.  Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process.  After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits.  A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

 Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons.  All of these investment products are leveraged, and you can lose more than your initial deposit.  Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction.  The information provided here should not be relied upon as a substitute for independent research before making your investment decisions.  Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs.  All investors should obtain advice based on their unique situation before making any investment decision.  The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative.  The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions.  Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at jon@superiorfeed.com.

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