Grain pricing strategies: A key to profitable marketing | Journal Advocate

Edward Usset, grain marketing specialist for the Center for Farm Financial Management, University of Minnesota prefers to concentrate his efforts in helping producers become better at marketing their commodities by assisting them in eliminating mistakes. In his presentation titled “Five Common Mistakes in Grain Marketing,” Ed outlines the mistakes: reluctance to pre-harvest price crops; failure to understand and track local basis; failure to have an exit strategy; holding old crop grain in storage too long; and using call options to avoid storage costs. I have taken Ed’s thoughts and made a couple of minor changes to reflect grain marketing in Northeastern Colorado.

My list of mistakes include: not knowing your cost of production; reluctance to pre-harvest price crops; failure to understand and track local basis; failure to have a pricing strategy; and holding unpriced grain in storage too long. In this article I’ll elaborate on mistake number four, failure to have a pricing strategy.

How many of us have missed an opportunity to sell our grain at a profit because we thought the market would go up a nickel and then we would wait to sell, only to watch the market go down 15 cents? A pricing strategy (a component of a marketing plan) allows us to take some of the emotion out of marketing and make decisions based on our cost of production. Pricing strategies can be either price and/or timing driven.

One common pricing strategy is the step up approach. In this strategy a producer develops a plan to pre-harvest price all of their crop that is guaranteed through revenue protection crop insurance in 5,000 bushel (one standard futures contract) increments, based on date and price. The final part of this plan is to have all of the guaranteed bushels priced by a predetermined date. Let’s look at an example of a step-up plan for marketing corn.

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Grain pricing strategies: A key to profitable marketing – Journal Advocate.