Over the years I’ve spent in the grain origination business I’ve consistently heard three fears from producers that have prevented them from forward selling their crops. If you have concerns about forward sales, take a look at these rationales that debunk some of the most common grain marketing fears.
1. “I will not produce what I’m selling.”
Selling ahead of production tends to lead to uncertainty around what you will actually produce. If we remember back to the 2012 and 2002 droughts and some of the bad floods we’ve had in the past, it’s fairly easy to see why this concern exists. Having a good understanding of federal crop insurance is crucial.
In most cases, your policy will provide coverage that guarantees of number of bushels that can be marketed against.
It’s important that you and your merchandiser understand what that number is. The more knowledge you both have of your policy the easier it is to determine both the type and number of contracts for each unique farming operation.
2. “The second I sell, the market will go up and make me unhappy with my contract price when it’s time to deliver.”
When you make a decision to hedge bushels, you must have solid reasoning behind the level you’re selling at, and you should always sell with confidence.
It’s a lot better to be a price picker than a price taker.
Think of it this way, isn’t it better to pick the price you get rather than have a cash need that forces you to move grain into the marketplace regardless of price?
That’s why it’s important to have a sound target price that comes from your operation’s personalized budget so you can know you’re selling for a reason (either because it’s profitable or because it’s a fair price).
3. “I might have to write a check to buy out of a contract if I haven’t fulfilled it.”
Again, this falls back to federal crop insurance.
It’s very important to understand how crop insurance indemnifies you, and at what price period and price levels.
In the rare event that you don’t have bushels due to lack of production, it’s critical that your contracts are cancelled with the elevator to match up with the time period in which crop insurance indemnifies you.
Visit FarmLogs Crop Marketing Education page to learn more about grain marketing!