As we approach the 50% planted mark for corn and soybeans, much of how the crop and marketing year will play out is moving “out of your hands” and into the hands of mother nature, geopolitics, and a slew of other factors – most of which are completely unpredictable.
Instead of trying to convince you why the market could go significantly higher from here or why the market could fall apart at any minute, I think time is better spent focusing on what you can do to position yourself for price moves beyond your expectations. Ultimately, what hurts your operation is the unexpected market melt-down or the equally unexpected multi-dollar rally after you’ve sold the bulk of your production. It is time to perform a marketing mindset check-up.
Do you have enough upside opportunity?
This is an obvious question, but one that shouldn’t be overlooked. With strong markets can come more aggressive forward sales. After all, “How much higher can the market really go, right?”
Market experts and farmers have been asking this question for nearly the last two years now in the face of an epic bull run in commodity markets. Asking ourselves how much upside opportunity we have is a valid question because what you think is a 50% sold position could quickly turn into a 150% sold position if drought or disaster strikes.
This is all too familiar to those in hard red wheat country who sold $7-$9 wheat without any call ownership and are looking at crop failures or reduced yields at a minimum. Real dollars are taken off the table with little-to-no bushels left to sell at near-record highs. This example alone should highlight the importance of staying in the game on those early ‘scale-in’ marketing decisions by optionizing your decisions and retaining a book of ownership as you progress your marketing plan.
Do you have enough downside coverage?
On the flip side, we often see many marketing plans lacking the depth to broadly reach enough bushels across an operation to make a significant impact when the market moves. It’s well known that in bull markets producers usually sell too much too quickly and when markets crash, often too much risk is on the table. If your markets were to unexpectedly fall 15-20%, how much equity would be lost across your operation?
Have you ran the numbers on your equity improvement since January 1? If not, you should ask your advisor to do it. If the market falls 20%, do you have enough downside coverage to offset the impact that type of move would have on your operation?
Stay balanced and flexible to embrace volatility
Balance and flexibility matter. If you haven’t bought into this concept yet, I don’t know what situation on earth would change your mind. One of the most ignored tools within the farm marketing scope is flexibility. Rarely are the marketing decisions we make black or white, there are always pros and cons to each decision we face, and clarity will only be offered in hindsight. Building balance and flexibility means defending the decisions you make with tools that allow you to operate in the gray through uncertainty.
Markets move and things change. Are the marketing tools you use nimble enough to give you flexibility and be managed as the marketing year ahead unfolds?
Just like a little rain and sunshine can fix many of the agronomic mistakes we make in the field, a strong bull market can cover up common marketing mistakes, leading to a false sense of control and an overconfident market mindset. Now is not the time to get complacent nor comfortable. You are spending the most money you’ve ever spent to put a crop in the ground. How are you protecting your investment and how are you positioned for the opportunity that could lie ahead?
Optimize your marketing plan
We must respect the variety of different outcomes that could play out over the coming months, much of it is out of our hands and completely unpredictable. Make sure the decisions you make adequately protect and position your operation for dramatically higher or lower markets. Be sure your plan manages broadly enough to positively impact to your operation. Input prices matter. Production matters. Making flexible marketing decisions matters.
As you perform your marketing mindset check-up, keep the big picture in mind and remember that your decisions are bigger than nickels and dimes. Manage the dollars!
If you are ready to learn how you can embrace these volatile markets and execute a marketing plan that works for you, contact Advance Trading today.
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