Video 2 - 2020 Virtual Nebraska Soybean Day and Machinery Expo

Deloris Pittman Author

12/21/2020 Added

20 Plays

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How to Write a Pre-Harvest Marketing Plan Ed Usset, Grain Marketing Specialist, University of Minnesota

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[00:00:12.410]As I mentioned at the start of the break,
[00:00:14.960]thought I'd have a little quiz here
[00:00:17.080]to
[00:00:18.800]ask folks
[00:00:20.770]in the backdrop behind me here,
[00:00:22.600]the soybean field
[00:00:23.930]where there's no fences and no trees
[00:00:26.030]and no mountains,
[00:00:26.863]where this might be located.
[00:00:28.890]And I think I'll defer
[00:00:30.480]answering that into our 11:05 break.
[00:00:34.750]So if you
[00:00:35.810]wanna continue sharing
[00:00:37.840]your guess through the chat, that'd be fine.
[00:00:41.320]Again, my name is Keith Glewen, an extension educator
[00:00:44.590]located at the Eastern Nebraska Research
[00:00:46.690]and Extension Center near Mead,
[00:00:49.080]and on behalf of the Nebraska Extension and the
[00:00:52.220]Nebraska Soybean Board
[00:00:53.560]and the Saunders County Soybean Growers Organization,
[00:00:56.800]welcome to, those of you are just joining us,
[00:01:00.700]with us today we have
[00:01:02.110]Ed Usset, who is green market economist
[00:01:05.660]with the Center for
[00:01:08.054]Farm Financial Management at the University of Minnesota.
[00:01:12.096]And so Ed
[00:01:13.576]and has completed the first 30 minutes.
[00:01:15.900]We took a break and now we're gonna continue.
[00:01:17.890]So the helm is yours Ed.
[00:01:21.260]Thank you.
[00:01:22.410]I'm gonna grab another
[00:01:25.050]PowerPoint here to share.
[00:01:28.480]Good morning again, to all of you.
[00:01:31.740]You should be seeing my PowerPoint
[00:01:33.620]on how to write a pre-harvest marketing plan,
[00:01:37.130]and
[00:01:38.830]I promised I wouldn't do this
[00:01:40.810]to Keith and all you good people in Nebraska,
[00:01:43.770]but I can't help but point to the lower right-hand side
[00:01:46.670]and you see Goldie the Golfer there,
[00:01:48.910]okay?
[00:01:49.743]That's all I'll say, okay?
[00:01:51.990]What the University of Minnesota
[00:01:53.820]and I'll go no further than that.
[00:01:56.320]As some of you may recognize me
[00:01:58.320]'cause I also contribute
[00:02:00.580]monthly columns to corn and soybean digest,
[00:02:04.910]and in the last
[00:02:07.870]year and a half I've added
[00:02:09.500]farm futures magazine to that.
[00:02:12.210]We're gonna talk about how to write a
[00:02:14.000]pre-harvest marketing plan,
[00:02:15.820]and again,
[00:02:16.670]thanks again to all the sponsors who help put this
[00:02:20.240]Nebraska Soybean Day and Machinery Expo together.
[00:02:24.790]You know, I'm not,
[00:02:26.790]may irritate some of you,
[00:02:28.320]your mind is on soybeans,
[00:02:30.370]and I'm going to use the example
[00:02:33.956]of a pre-harvest corn marketing plan.
[00:02:36.640]It's just
[00:02:37.620]the approach I'm using here
[00:02:39.800]applies to the soybeans.
[00:02:41.260]In fact,
[00:02:42.093]I'll show you
[00:02:42.926]a pre-harvest marketing plan for soybeans.
[00:02:45.800]But I just choose to use corn to illustrate it.
[00:02:49.820]Always have, it just seems to be
[00:02:52.840]what I'm most comfortable with.
[00:02:54.890]But everything I talk about here,
[00:02:57.100]we will apply to a soybean plant too.
[00:02:59.950]Well, I've got a
[00:03:02.170]2021
[00:03:04.050]pre-harvest marketing plan for corn
[00:03:07.000]that I'm showing you here.
[00:03:08.280]And what I'd like to do over the next 30 minutes
[00:03:12.060]is explain to you
[00:03:14.180]why it looks the way it does,
[00:03:18.530]where the numbers come from,
[00:03:20.170]where the dates come from,
[00:03:21.700]what am I trying to accomplish here,
[00:03:24.550]and as I do this,
[00:03:26.760]I hope
[00:03:28.660]you think about my,
[00:03:30.280]you look at my marketing plan.
[00:03:32.320]I don't expect
[00:03:33.310]any of the you good Nebraska producers to look at it
[00:03:37.970]and have me convince you that this is the perfect plan.
[00:03:41.200]It's not the perfect plan.
[00:03:43.350]But as I explain how I got here,
[00:03:46.750]you're gonna think about your own operation,
[00:03:50.330]some things will make sense to you,
[00:03:52.680]some will will not,
[00:03:54.550]some things you're gonna say,
[00:03:55.747]"Well, I'd do that a little differently."
[00:03:58.370]And as you do that,
[00:04:00.400]you're developing your own marketing plan,
[00:04:03.290]and that's good.
[00:04:04.900]That's a good thing to do.
[00:04:06.570]So
[00:04:07.403]use it as a base,
[00:04:08.560]a jumping off point
[00:04:10.350]for the development of your own marketing plan.
[00:04:13.950]And what we're gonna do
[00:04:15.530]is
[00:04:16.363]think about three aspects of this plan.
[00:04:18.500]The first aspect is the price targets.
[00:04:24.510]I've got price objectives,
[00:04:26.440]starting as low as
[00:04:30.610]3.75 cash price for 25 December futures,
[00:04:34.810]working its way up to,
[00:04:36.300]oh my goodness, that must be bullish,
[00:04:38.140]5.75 in December corn futures.
[00:04:41.770]I've also got a minimum price,
[00:04:43.475]we're gonna talk about that.
[00:04:44.830]We're gonna talk about decision dates
[00:04:47.460]and how critical they are
[00:04:49.180]in pre-harvest marketing.
[00:04:50.880]And finally,
[00:04:51.990]in very general terms,
[00:04:54.450]we're gonna talk about pricing tools,
[00:04:56.970]TBD,
[00:04:58.330]to be determined.
[00:05:00.350]And
[00:05:01.320]we won't spend a lot of time on the tools,
[00:05:04.220]but
[00:05:05.130]just to give you my general philosophy there.
[00:05:08.090]Well, let's start with my pricing targets
[00:05:11.590]and talk about that aspect of my plan
[00:05:14.400]for 2021.
[00:05:17.640]First of all, I want to point out
[00:05:19.550]that I have a minimum price objective
[00:05:23.710]that is,
[00:05:24.870]if I don't see
[00:05:26.640]December corn futures at 4.25 or better,
[00:05:29.690]I'm not gonna take action on this plan.
[00:05:32.550]Now, my last talk,
[00:05:35.020]I just went to great pains
[00:05:37.280]arguing that, you know what?
[00:05:38.790]I could start lower than 4.25,
[00:05:41.690]anticipating post-harvest activities
[00:05:44.610]to get myself
[00:05:47.000]to a higher number.
[00:05:48.500]But for the moment,
[00:05:50.020]let me show you my plan
[00:05:52.310]and
[00:05:53.143]we'll focus on 4.25.
[00:05:54.980]Now, that minimum price objective,
[00:05:56.960]what's that about?
[00:05:59.430]The first thing you need
[00:06:00.980]in a pre-harvest marketing plan in my mind
[00:06:03.700]is the minimum price threshold.
[00:06:05.980]And my minimum price threshold, 4.25,
[00:06:09.260]December 21 futures
[00:06:11.510]3.75
[00:06:12.930]cash price.
[00:06:13.970]By the way,
[00:06:14.803]what am I assuming?
[00:06:16.220]I'm assuming a normal basis of 50 under a harvest, right?
[00:06:21.550]And that 3.75 blinds up
[00:06:24.560]with my estimate
[00:06:26.020]of cash production cost
[00:06:28.360]in Southern Minnesota.
[00:06:31.010]This by the way,
[00:06:32.100]this minimum price objective,
[00:06:34.960]you should stare out the window and think about this.
[00:06:37.830]This is a very important choice in developing
[00:06:41.110]your pre-harvest marketing plan.
[00:06:43.850]By the way, here's a little background.
[00:06:46.566]FINBIN
[00:06:47.720]is a database available to all of you
[00:06:51.420]with data coming in from Nebraska participates in this.
[00:06:56.280]This is
[00:06:57.370]farm management programs,
[00:06:59.760]work with farmers, get real data,
[00:07:02.330]and
[00:07:03.250]this is showing you Southern Minnesota
[00:07:07.020]cost of production of corn
[00:07:09.200]over the last decade
[00:07:12.040]on cash rented acres.
[00:07:14.050]And you can see in recent years,
[00:07:16.040]we've been around that 3.65 to 3.75.
[00:07:19.830]That's where my minimum price came from.
[00:07:22.350]It's based on production costs
[00:07:25.170]and
[00:07:26.240]that's my starting point,
[00:07:27.720]then I worked my way up.
[00:07:29.750]Soybeans, if you look at recent years,
[00:07:33.930]I'm projecting
[00:07:35.520]the cost of producing soybeans in the year ahead,
[00:07:38.770]somewhere around
[00:07:40.040]8.75 of bushel give or take,
[00:07:43.520]and if you think of a normal
[00:07:47.690]Southern Minnesota basis,
[00:07:49.500]again, I'm challenging you
[00:07:51.340]to think about Nebraska and your own farm here.
[00:07:54.900]But my reasoning is
[00:07:57.270]75 under at harvest would be a
[00:08:00.840]normal basis if there is such a thing,
[00:08:03.810]which means my minimum price in soybeans
[00:08:07.370]would be 9.50 a bushel,
[00:08:10.210]and November soybeans, 9.50 to 9.60.
[00:08:14.430]And guess what?
[00:08:15.460]November 21 soybeans are trading at
[00:08:18.650]10.60.
[00:08:20.790]They're a dollar over my minimum.
[00:08:22.890]We have something to talk about there.
[00:08:25.690]By the way here's our
[00:08:27.550]FINBIN website,
[00:08:28.710]you can look at it yourself
[00:08:31.010]for Nebraska, for different regions,
[00:08:33.450]www.finbin.umn.edu.
[00:08:39.630]Now,
[00:08:40.463]okay, there's step one.
[00:08:42.050]What's your minimum and it's based on
[00:08:45.830]production cost.
[00:08:47.100]Now, the second part of this,
[00:08:49.220]is we need a maximum price target.
[00:08:51.660]My plan begins at 4.25 December corn,
[00:08:55.270]works its way all the way up to 5.75.
[00:08:58.600]Now, I've got a little asterisk on the maximum price.
[00:09:02.410]I told you how important the minimum price was,
[00:09:05.860]and guess what the maximum price is
[00:09:08.940]not important.
[00:09:10.610]You're gonna see in a moment
[00:09:13.360]how decision dates
[00:09:15.140]make the maximum price kind of unimportant.
[00:09:18.560]But even though it's an important, I need one.
[00:09:22.420]What am I shooting for?
[00:09:24.160]And all I can say to you is
[00:09:27.270]be realistic
[00:09:28.630]about what the upside is.
[00:09:30.840]And let me tell you how I figured out 5.75
[00:09:34.660]or came to that number for an up side.
[00:09:38.020]I went back over the last 30 years
[00:09:41.000]and I picked out three of the best years we have seen.
[00:09:45.180]In terms of December corn futures,
[00:09:48.860]its price rise from January 1
[00:09:52.510]to it's highest level during the year.
[00:09:54.870]These are three incredible years,
[00:09:57.030]all from the second golden age of agriculture,
[00:09:59.770]2007 to 2014.
[00:10:03.240]December '08,
[00:10:04.420]contract, December '12, December '11,
[00:10:07.920]40 to 60% rise,
[00:10:10.420]a 50% rise.
[00:10:14.060]Kicked my minimum of a 4.25.
[00:10:18.350]What's 50% of that?
[00:10:20.020]Well, it's $2.
[00:10:22.778]It's over, a little over $2.
[00:10:24.740]I could justify
[00:10:26.370]based on this history
[00:10:28.610]a maximum price
[00:10:30.340]of $6 on the December contract.
[00:10:34.020]Not because I expect prices to go there,
[00:10:37.970]but because
[00:10:39.140]we've done that in the past.
[00:10:41.750]It's been done.
[00:10:43.480]Now, I don't think,
[00:10:44.313]I'm not predicting it will happen,
[00:10:46.550]it'd be nice if it did happen,
[00:10:48.730]but I'm not predicting it will,
[00:10:50.690]but I can say that that 5.75 is realistic
[00:10:55.820]as opposed to
[00:10:57.360]having a maximum price of $10 a bushel,
[00:11:00.890]which is not realistic in corn.
[00:11:05.450]So
[00:11:07.080]there's, I set this minimum
[00:11:09.250]based on my
[00:11:12.013]cost of production,
[00:11:13.040]I set a maximum
[00:11:14.270]based on some
[00:11:15.900]sense of a realistic upside,
[00:11:18.940]based on the best of the best years,
[00:11:21.330]and now I just layer every
[00:11:23.660]price objective in between.
[00:11:27.960]Let's talk about decision date,
[00:11:30.840]excuse me.
[00:11:36.090]I've got decision dates,
[00:11:37.950]March 29th, April 27th,
[00:11:40.330]may 26,
[00:11:41.430]June 10, June 24.
[00:11:43.730]What the heck is that about?
[00:11:46.110]Well,
[00:11:49.210]I've got price,
[00:11:50.530]after,
[00:11:52.010]notice I had date
[00:11:54.595]on the initial pricing step,
[00:11:56.850]4.25 December futures,
[00:11:58.800]3.75 cash.
[00:12:00.510]Why don't I have a date?
[00:12:02.040]I need to get there or I don't.
[00:12:04.000]If I don't get there, I'm not taking action,
[00:12:07.040]except for this
[00:12:08.790]desire to get to $4 a corn and
[00:12:12.150]maybe justifying taking action
[00:12:15.090]later in the spring, something modestly
[00:12:17.780]lower.
[00:12:21.100]Every other
[00:12:22.140]price objective
[00:12:23.410]has tied to it, a date.
[00:12:26.010]So our price at this price or at this date,
[00:12:28.740]this price or this date.
[00:12:30.460]If I reach a decision date,
[00:12:33.080]before I get to the price target,
[00:12:35.330]I'll price the grain
[00:12:37.190]as long as the price is above my minimum.
[00:12:42.380]Let me take it back here.
[00:12:44.050]Let's say we get a rally.
[00:12:45.980]We got
[00:12:47.000]4.25 December futures show up in early January.
[00:12:50.730]I get step one
[00:12:52.400]done,
[00:12:53.233]because I've reached my price objective.
[00:12:55.780]Now, between January
[00:12:57.940]and March 29th, my first decision date,
[00:13:01.430]December corn gets up to 4.50,
[00:13:04.770]but never 4.55, that's my next step.
[00:13:08.260]It never gets the 4.55,
[00:13:10.020]gets the 4.50 and March 29th,
[00:13:13.400]it's at 4.32.
[00:13:16.460]I never reached my price objective,
[00:13:19.320]but the decision date is here.
[00:13:21.570]What am I gonna do?
[00:13:23.110]If I'm above the minimum,
[00:13:24.880]if I'm above 4.25,
[00:13:26.900]I'm gonna press that gray.
[00:13:29.410]If I'm below 4.25, I'll pass.
[00:13:32.690]Don't throw out the plan,
[00:13:35.120]I'll wait for another, hopefully,
[00:13:37.210]cross my fingers and hope I get now shattered 4.25.
[00:13:41.260]You see how that's
[00:13:42.440]gonna be making me move forward.
[00:13:44.630]Decision dates,
[00:13:46.380]make this a real plan for action.
[00:13:49.560]I love to tell the story,
[00:13:52.270]when I first started talking about marketing plans
[00:13:56.813]and
[00:13:59.090]I think my marketing plan is,
[00:14:01.610]it fits on one piece of paper,
[00:14:03.630]it's in large print,
[00:14:04.870]it's pretty simple
[00:14:06.710]and straightforward to follow,
[00:14:08.600]but I had a producer stand up and say,
[00:14:11.527]"I've got a better marketing plan than you
[00:14:14.080]and it's more simple."
[00:14:16.820]And
[00:14:17.720]to put it in today's terms,
[00:14:19.610]this was 20 years ago,
[00:14:21.280]let's put it in today's terms.
[00:14:22.980]He said,
[00:14:23.813]"You show me $5 corn
[00:14:27.160]and I'll price my corn."
[00:14:28.580]And you know what?
[00:14:29.413]That is a simple plan, isn't it?
[00:14:31.670]And yet we don't have $5 corn.
[00:14:34.550]And in fact,
[00:14:35.897]$5 corn may not show up for next two or three years.
[00:14:39.680]That's not a plan for action.
[00:14:42.659]That's an excuse to do nothing,
[00:14:45.170]waiting for
[00:14:46.220]an unrealistic price
[00:14:48.850]or
[00:14:50.130]gathering up one hell of last story during the farm
[00:14:52.900]waiting for that price.
[00:14:55.540]Now,
[00:14:56.373]you understand what the decision date is,
[00:14:58.880]we have to ask,
[00:15:00.040]what's so special about March,
[00:15:01.910]April, may, and June?
[00:15:03.410]Why,
[00:15:04.243]they're all in that cluster,
[00:15:05.680]that four month period?
[00:15:08.060]Well,
[00:15:08.970]here I'm gonna take you,
[00:15:10.400]a little history, I showed it to you briefly before.
[00:15:14.820]This is December corn futures over the last two decades,
[00:15:18.700]2000 to 2020.
[00:15:20.780]I'm looking at it twice a year.
[00:15:23.000]First on May 1,
[00:15:24.390]that's planting,
[00:15:25.320]that represents planting time.
[00:15:27.630]Five months later, I look at the December contract again,
[00:15:31.230]October 1,
[00:15:32.470]that's harvest time.
[00:15:35.320]Now, if life was a coin flip,
[00:15:38.090]you would say that,
[00:15:39.627]you know, over 20 years,
[00:15:41.200]10 years it goes up, 10 goes down and,
[00:15:44.650]you know, shrugged their shoulders and who knows.
[00:15:47.270]That's not what we see though.
[00:15:49.260]Over the last 20 years,
[00:15:51.240]21 years,
[00:15:52.450]15 years, the market has gone lower
[00:15:55.180]from spring to fall.
[00:15:57.620]And in fact, if you look at the lower right-hand corner,
[00:16:01.200]you'll note that the average decline of December futures
[00:16:04.990]from May 1 to October 1
[00:16:07.240]is 30 cents bushel,
[00:16:09.410]that's the average.
[00:16:12.990]This is not a certainty,
[00:16:15.870]but it is a strong seasonal tendency,
[00:16:18.450]and in fact, I tell people that this
[00:16:20.920]seasonal tendency for corn
[00:16:24.250]to go lower
[00:16:25.960]after harvest is the strongest seasonal tendency
[00:16:29.170]I can find in any
[00:16:30.600]agricultural commodity.
[00:16:32.690]Soybeans have a similar tendency.
[00:16:35.950]Not quite as strong,
[00:16:38.010]but it does speak to the need for a minimum price.
[00:16:41.070]Here it is on,
[00:16:42.800]here's the average
[00:16:44.730]look at the corn market.
[00:16:48.810]Let's take a look at the value
[00:16:50.330]of this.
[00:16:52.550]Again,
[00:16:53.990]introduce you to some characters to think about this
[00:16:57.440]tendency.
[00:16:59.150]You know Barney.
[00:17:00.280]He has no marketing plan,
[00:17:01.700]no storage, he prices at harvest and he's our benchmark.
[00:17:05.360]Now, I wanna introduce you a new player.
[00:17:09.210]Remember on Terry,
[00:17:10.680]she made 20% sales,
[00:17:12.870]March, April, May and June,
[00:17:14.890]regardless of price.
[00:17:17.280]High, lower, indifferent,
[00:17:18.860]Terry took action.
[00:17:20.440]Terry Timer
[00:17:22.560]takes action on the exact same days with a difference.
[00:17:26.860]Terry has a minimum price
[00:17:29.087]and that minimum price is tied to her cost of production.
[00:17:33.270]And in 2021, she's not gonna take action
[00:17:36.750]if December corn is less than 4.25
[00:17:39.930]or November soybean's less than 9.75.
[00:17:46.300]Well,
[00:17:48.180]I've got,
[00:17:49.180]you may not be convinced,
[00:17:50.590]only 32 years of data.
[00:17:53.700]Terry is beating Barney
[00:17:55.230]by 16 cents a bushel on average
[00:17:58.750]in corn,
[00:17:59.830]she's beating Barney by 32 cents a bushel
[00:18:02.770]on average in soybeans.
[00:18:05.840]She has beaten Barney
[00:18:07.340]or equaling him
[00:18:09.160]in 27 of 30 years,
[00:18:11.210]two years in corn,
[00:18:12.540]23 at 32 years in soybeans,
[00:18:15.520]nothing is a 100%.
[00:18:17.520]By the way,
[00:18:18.560]Terry also prices,
[00:18:20.450]she prices 80% per insured bushels,
[00:18:23.640]the final 20%
[00:18:25.560]priced at Barney's price
[00:18:27.340]and part of these numbers.
[00:18:30.960]Let's take away
[00:18:33.490]the eight years
[00:18:35.520]when
[00:18:37.070]Terry's opportunity never got to production costs.
[00:18:40.240]In other words, she did nothing
[00:18:42.080]in eight corn years
[00:18:43.660]and in seven soybean years.
[00:18:45.810]And why mean is,
[00:18:46.650]she just ended in in those years
[00:18:48.980]where it doesn't reach her minimum,
[00:18:51.080]she just prices everything at harvest like Barney.
[00:18:54.530]So I've taken away though those
[00:18:56.720]tied years,
[00:18:57.930]where they were the same
[00:18:59.700]and focused on
[00:19:01.200]the remaining years,
[00:19:03.040]24 years in corn,
[00:19:04.620]25 years in soybeans
[00:19:06.270]where Terry actually took action.
[00:19:08.940]And then soybeans,
[00:19:11.360]she beat Barney
[00:19:13.780]by an average of 21 cents a bushel in those years,
[00:19:16.850]41 cents and soybeans.
[00:19:19.280]But not every year.
[00:19:20.860]It's a story tendency but it's not a certainty.
[00:19:24.100]She beat Barney 19 of 24 of those corn years.
[00:19:27.470]That means Barney
[00:19:29.250]beat Terry,
[00:19:30.630]five of 24 years.
[00:19:33.680]In
[00:19:34.513]soybeans,
[00:19:35.346]Barney beat Terry nine of 25 years.
[00:19:38.680]Nothing is a 100% here,
[00:19:41.030]but there seems to be some value here.
[00:19:44.400]By the way,
[00:19:45.970]if you'd look at November soybeans of since 2000,
[00:19:50.210]and you gonna say, okay,
[00:19:52.740]the tendency
[00:19:54.340]to go lower was
[00:19:56.270]not quite six out of 10 years.
[00:19:58.770]That's not a very impressive tendency.
[00:20:01.630]But you know what?
[00:20:03.670]Soybeans in particular
[00:20:05.580]showed the need for a minimum price.
[00:20:08.520]So what I've done here,
[00:20:11.080]I've taken four years out of the equation.
[00:20:14.150]Four years,
[00:20:14.983]2001,
[00:20:16.163]2002,
[00:20:17.440]when November futures were trading
[00:20:19.267]$4.5 in the spring,
[00:20:22.710]clearly under production costs.
[00:20:25.150]And even the last two years,
[00:20:27.970]where in May of 2020,
[00:20:30.520]May of 2019,
[00:20:32.600]you had November futures trading at
[00:20:35.190]8.50 to 8.75,
[00:20:37.810]or a cash price
[00:20:40.330]of $8 and sometimes less per bushel.
[00:20:44.230]Clearly under production costs.
[00:20:46.670]Take years out of the equation,
[00:20:49.320]look at the remaining
[00:20:52.180]17 years,
[00:20:53.800]and seven of those 10 years went lower
[00:20:56.560]by an average of 47 cents a bushel.
[00:20:59.890]That minimum price
[00:21:01.690]is very important to me.
[00:21:08.330]There it is graphically,
[00:21:10.040]and
[00:21:12.240]yeah, Terry's tried to get something done
[00:21:15.260]in late March, April, May, June.
[00:21:21.790]Well, last part I wanna talk about here,
[00:21:24.130]the least important part of the plan is pricing tools,
[00:21:26.715]and I'm not gonna go through pricing tools
[00:21:29.870]as much as just give you my general philosophy here.
[00:21:33.610]I'm very vague.
[00:21:34.950]First of all, I say TBD to be determined,
[00:21:39.040]to be determined by what?
[00:21:41.530]In my humble opinion,
[00:21:43.940]the tool you choose to price
[00:21:46.090]is a tactical decision
[00:21:48.210]and it's a decision you make
[00:21:51.899]when it's kind to take action.
[00:21:53.590]You've reached your price objective,
[00:21:55.760]you're at a decision date,
[00:21:57.560]now you look at the landscape of what's available.
[00:22:00.910]And pricing tools come in a
[00:22:03.800]couple of forms,
[00:22:04.740]fixed price tools,
[00:22:06.950]the forward contract, selling futures,
[00:22:09.350]futures fixed or HTA, they're sort of kissing cousins.
[00:22:13.130]You're setting a price,
[00:22:14.470]no upside.
[00:22:16.970]Minimum price tools include forward contracting,
[00:22:20.960]and
[00:22:21.793]re-owning with the call or simply buying a put option,
[00:22:26.240]and you could also consider technical tools
[00:22:29.490]following trends and things like that.
[00:22:33.920]Fixed price tools.
[00:22:35.520]Yeah, the good news,
[00:22:36.940]if I went out today and priced new crop soybeans,
[00:22:41.220]which is something to think about
[00:22:43.210]with the November contract over 10.60,
[00:22:46.250]I could lock in a Southern Minnesota price of
[00:22:51.260]very close to $10 a bushel, okay?
[00:22:54.580]The good news is
[00:22:55.870]I know what I'm getting next fall for soybeans,
[00:22:58.580]something close to $10 a bushel.
[00:23:00.900]The bad news is
[00:23:02.610]if all the noise we hear about
[00:23:05.180]bull markets and things continue,
[00:23:07.920]I get $10 a bushel and my neighbor gets 11.50 or 12.
[00:23:12.420]That's the bad news,
[00:23:13.440]I have no upside.
[00:23:15.610]I have no downside either.
[00:23:16.900]My neighbor might be getting $8 and I got 10.
[00:23:20.950]Minimum price stools give me that upside potential.
[00:23:24.430]If I buy a put,
[00:23:25.560]I'm not hard committed
[00:23:28.370]to a final price,
[00:23:30.530]but of course
[00:23:31.650]options cost money,
[00:23:33.390]and,
[00:23:35.270]you know, you're in a low margin business so
[00:23:37.280]you have to balance that.
[00:23:40.900]Here's my philosophy on this.
[00:23:51.810]In general,
[00:23:53.560]I prefer
[00:23:54.740]to use simple low cost tools early in the plan.
[00:23:58.850]I think I had six or seven steps in my marketing plan.
[00:24:02.880]In the first three steps,
[00:24:05.790]I'm gonna keep it simple,
[00:24:07.170]I'm just gonna get it priced,
[00:24:08.950]and then hope like, hell, I'm wrong,
[00:24:11.100]'cause they've got more to price.
[00:24:12.770]In other words, hope
[00:24:15.050]that in the months ahead, I said,
[00:24:16.727]"Geez, I should've never sold that
[00:24:18.790]so cheap and so soon,
[00:24:20.660]because the market's gone up.
[00:24:22.360]That'd be a good situation to have."
[00:24:25.610]I'll save options
[00:24:27.540]or technical tools,
[00:24:29.050]this desire to follow a trend.
[00:24:31.730]I'll save that for later steps in the plan.
[00:24:35.380]I'll consider them
[00:24:37.180]later in the plan.
[00:24:40.035]A couple of advantages there.
[00:24:41.440]First of all,
[00:24:42.850]time value of options
[00:24:44.350]gets cheaper as time gets shorter,
[00:24:47.120]so maybe I can cut my costs of options.
[00:24:50.360]The other reason is
[00:24:52.570]if I'm looking to follow a trend,
[00:24:55.380]you know,
[00:24:56.600]shop trends are more apt to be to occur
[00:25:00.660]in the summer months during the growing season
[00:25:03.300]as opposed to January, February, March.
[00:25:10.260]Well,
[00:25:11.443]I do have a book out there,
[00:25:12.880]it's called "Grain Marketing is Simple",
[00:25:14.750]the second edition, you can find it at our website.
[00:25:18.620]We have sold it out.
[00:25:19.910]We now go through lulu.com
[00:25:22.030]and sell them one at a time.
[00:25:23.650]If you're interested, it's available online for
[00:25:27.200]39.95, $40,
[00:25:30.065]and
[00:25:31.230]I hear it makes a great Christmas gift.
[00:25:34.350]I also hear that
[00:25:35.840]if you can't get the sleep at night,
[00:25:37.920]I've had people tell me that
[00:25:39.970]five minutes with my book and insomnia is cured,
[00:25:44.200]so be it.
[00:25:46.230]There's my 2021 pre-harvest marketing plan for corn,
[00:25:51.430]4.25 minimum price,
[00:25:53.300]we're currently at about 4.14,
[00:25:55.210]not far from starting.
[00:25:56.830]Soybeans,
[00:25:58.110]9.75 minimum price and son of a gun that,
[00:26:02.350]that's yesterday's quote.
[00:26:03.740]I think we're at 10.64 this morning,
[00:26:07.070]we're a 90 cents above my minimum.
[00:26:10.610]My plan starts January 1,
[00:26:12.790]I haven't done anything yet,
[00:26:14.010]but you know what I feel like doing something,
[00:26:16.260]time to get in.
[00:26:18.580]I have posted up here
[00:26:22.040]templates,
[00:26:22.910]you might wanna print
[00:26:24.300]for developing your own plan for corn soybeans.
[00:26:27.750]You can do it for winter wheat too.
[00:26:29.810]This is an imperfect plan,
[00:26:31.410]but I'll take my imperfect plan
[00:26:33.880]over no plan at all because
[00:26:36.060]when I write a plan,
[00:26:38.370]I've laid out a benchmark from my goals in the year ahead.
[00:26:42.310]And if something changes,
[00:26:44.450]we live in a hell of a world,
[00:26:45.990]people, things change.
[00:26:47.580]If something changes,
[00:26:48.880]I can go back to my plan
[00:26:50.980]and think about how I adapt.
[00:26:53.380]If I don't have a marketing plan,
[00:26:56.300]you're winning at the start with,
[00:26:58.510]and how do you adapt that, okay?
[00:27:01.260]So I'll take my imperfect plan over no plan at all.
[00:27:05.980]I'm often asked if I'm a bull or a bear and
[00:27:09.630]I have opinions,
[00:27:10.720]but my opinion and
[00:27:12.180]five bucks will get you a latte in the twin cities.
[00:27:15.580]I've done better than a bull or bear,
[00:27:18.110]I'm T-rex.
[00:27:20.550]That's the Plaza theater of wax and San Antonio,
[00:27:24.090]March, 2017.
[00:27:27.110]I love that photo.
[00:27:29.320]Okay,
[00:27:30.650]quick review.
[00:27:32.120]Step one, set pricing targets.
[00:27:34.340]That minimum price objective is very important,
[00:27:37.100]the maximum price objective, less important.
[00:27:40.700]Pricing grain below production costs,
[00:27:42.910]I'm willing to do so.
[00:27:44.280]I've talked about how to get $4 corn,
[00:27:47.190]but I'm not ready to
[00:27:48.850]reach out right now.
[00:27:50.580]Set your decision dates,
[00:27:52.330]seasonal trends support much to June for those dates.
[00:27:56.300]And finally on pricing tools,
[00:27:59.240]I like
[00:28:00.580]simple low cost tools early in the plan,
[00:28:04.410]and then later in the plan,
[00:28:07.110]I'll consider getting fancy with the options
[00:28:10.070]or technical tools.
[00:28:13.750]Okay, Kayy, thank you very much,
[00:28:16.170]and
[00:28:17.355]I think I've got one more round coming up here.
[00:28:20.030]That's correct Ed, thank you.
[00:28:22.456]There's a few questions in the chat box.
[00:28:27.360]Why is cost of production your minimum price threshold?
[00:28:32.150]The market doesn't care what your cost of production is.
[00:28:35.610]Well, I'll tell you...
[00:28:39.900]The commenter is absolutely right,
[00:28:43.210]that once the crop is harvested
[00:28:47.020]and once you've planted it,
[00:28:48.520]the market does not care what your cost of production is.
[00:28:51.590]It doesn't know you, the cost of production.
[00:28:53.620]However,
[00:28:54.830]in developing a pre harvest marketing plan
[00:28:57.430]and looking ahead,
[00:28:59.030]six months, eight months, a year,
[00:29:01.650]I think it's a relevant issue,
[00:29:03.440]because
[00:29:04.273]I would like to cover my costs or better.
[00:29:07.160]So I think it's
[00:29:09.330]a relevant thought
[00:29:12.290]in developing a pre-harvest marketing plan.
[00:29:15.090]I have another talk on post-harvest marketing,
[00:29:17.780]I never mentioned production costs,
[00:29:19.970]because just as you said,
[00:29:22.460]once you've harvested it,
[00:29:24.260]the market doesn't care what your costs are
[00:29:28.190]Second question,
[00:29:29.210]you may have touched on this and I missed it.
[00:29:32.260]Shouldn't the minimum price threshold be market driven?
[00:29:38.750]You mean looking at,
[00:29:41.250]I'm gonna take that as saying shouldn't I
[00:29:44.150]look at the outlook,
[00:29:46.780]look at the smart people who look at exports in that
[00:29:50.140]and adapt it accordingly?
[00:29:52.450]You know,
[00:29:55.796]one of my,
[00:29:59.060]hard way about my approach and somebody may be asking this,
[00:30:03.170]you're gonna look at what I did and you're gonna say
[00:30:07.610]you just wrote a marketing plan
[00:30:10.190]and you never mentioned China,
[00:30:12.920]you never mentioned the ratio in Iowa,
[00:30:16.310]you never talked about planning prospects in '21,
[00:30:20.020]you never looked at the outlook.
[00:30:22.560]And that's right, I did not.
[00:30:24.960]I write a plan without looking at that.
[00:30:27.490]Now,
[00:30:29.090]if you wanna take this approach,
[00:30:31.130]and now shade it to your own biases,
[00:30:34.210]I'm okay with that.
[00:30:36.320]But keep in mind,
[00:30:37.740]they are your biases and you might be wrong.
[00:30:41.970]And the last question, does Barney and Terry
[00:30:45.470]example include marketing costs.
[00:30:49.120]Well, Barney has no marketing costs,
[00:30:51.490]he just sells it at harvest price.
[00:30:53.490]And yes,
[00:30:55.320]Terry,
[00:30:57.660]I believe I'm assuming 1 cent
[00:31:00.400]brokerage fees
[00:31:01.850]on her use of futures.
[00:31:05.770]Yes.
[00:31:06.740]Okay.
[00:31:08.370]Well again, if you have additional questions
[00:31:10.450]regarding any of Ed's presentation,
[00:31:13.680]at the start and now there's second one
[00:31:15.630]feel free to put those in the chat box.
[00:31:18.620]We're gonna take another break and again, you can
[00:31:21.940]submit your guess to
[00:31:23.730]where the soybean field might be
[00:31:26.740]during the breaks.
[00:31:27.573]So with that
[00:31:28.500]we'll see you back in about 10 minutes.

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Video 2 - 2020 Virtual Nebraska Soybean Day and Machinery Expo

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