-: As I mentioned at the start of the break,
thought I'd have a little quiz here
to
ask folks
in the backdrop behind me here,
the soybean field
where there's no fences and no trees
and no mountains,
where this might be located.
And I think I'll defer
answering that into our 11:05 break.
So if you
wanna continue sharing
your guess through the chat, that'd be fine.
Again, my name is Keith Glewen, an extension educator
located at the Eastern Nebraska Research
and Extension Center near Mead,
and on behalf of the Nebraska Extension and the
Nebraska Soybean Board
and the Saunders County Soybean Growers Organization,
welcome to, those of you are just joining us,
with us today we have
Ed Usset, who is green market economist
with the Center for
Farm Financial Management at the University of Minnesota.
And so Ed
and has completed the first 30 minutes.
We took a break and now we're gonna continue.
So the helm is yours Ed.
-: Thank you.
I'm gonna grab another
PowerPoint here to share.
Good morning again, to all of you.
You should be seeing my PowerPoint
on how to write a pre-harvest marketing plan,
and
I promised I wouldn't do this
to Keith and all you good people in Nebraska,
but I can't help but point to the lower right-hand side
and you see Goldie the Golfer there,
okay?
That's all I'll say, okay?
What the University of Minnesota
and I'll go no further than that.
As some of you may recognize me
'cause I also contribute
monthly columns to corn and soybean digest,
and in the last
year and a half I've added
farm futures magazine to that.
We're gonna talk about how to write a
pre-harvest marketing plan,
and again,
thanks again to all the sponsors who help put this
Nebraska Soybean Day and Machinery Expo together.
You know, I'm not,
may irritate some of you,
your mind is on soybeans,
and I'm going to use the example
of a pre-harvest corn marketing plan.
It's just
the approach I'm using here
applies to the soybeans.
In fact,
I'll show you
a pre-harvest marketing plan for soybeans.
But I just choose to use corn to illustrate it.
Always have, it just seems to be
what I'm most comfortable with.
But everything I talk about here,
we will apply to a soybean plant too.
Well, I've got a
2021
pre-harvest marketing plan for corn
that I'm showing you here.
And what I'd like to do over the next 30 minutes
is explain to you
why it looks the way it does,
where the numbers come from,
where the dates come from,
what am I trying to accomplish here,
and as I do this,
I hope
you think about my,
you look at my marketing plan.
I don't expect
any of the you good Nebraska producers to look at it
and have me convince you that this is the perfect plan.
It's not the perfect plan.
But as I explain how I got here,
you're gonna think about your own operation,
some things will make sense to you,
some will will not,
some things you're gonna say,
"Well, I'd do that a little differently."
And as you do that,
you're developing your own marketing plan,
and that's good.
That's a good thing to do.
So
use it as a base,
a jumping off point
for the development of your own marketing plan.
And what we're gonna do
is
think about three aspects of this plan.
The first aspect is the price targets.
I've got price objectives,
starting as low as
3.75 cash price for 25 December futures,
working its way up to,
oh my goodness, that must be bullish,
5.75 in December corn futures.
I've also got a minimum price,
we're gonna talk about that.
We're gonna talk about decision dates
and how critical they are
in pre-harvest marketing.
And finally,
in very general terms,
we're gonna talk about pricing tools,
TBD,
to be determined.
And
we won't spend a lot of time on the tools,
but
just to give you my general philosophy there.
Well, let's start with my pricing targets
and talk about that aspect of my plan
for 2021.
First of all, I want to point out
that I have a minimum price objective
that is,
if I don't see
December corn futures at 4.25 or better,
I'm not gonna take action on this plan.
Now, my last talk,
I just went to great pains
arguing that, you know what?
I could start lower than 4.25,
anticipating post-harvest activities
to get myself
to a higher number.
But for the moment,
let me show you my plan
and
we'll focus on 4.25.
Now, that minimum price objective,
what's that about?
The first thing you need
in a pre-harvest marketing plan in my mind
is the minimum price threshold.
And my minimum price threshold, 4.25,
December 21 futures
3.75
cash price.
By the way,
what am I assuming?
I'm assuming a normal basis of 50 under a harvest, right?
And that 3.75 blinds up
with my estimate
of cash production cost
in Southern Minnesota.
This by the way,
this minimum price objective,
you should stare out the window and think about this.
This is a very important choice in developing
your pre-harvest marketing plan.
By the way, here's a little background.
FINBIN
is a database available to all of you
with data coming in from Nebraska participates in this.
This is
farm management programs,
work with farmers, get real data,
and
this is showing you Southern Minnesota
cost of production of corn
over the last decade
on cash rented acres.
And you can see in recent years,
we've been around that 3.65 to 3.75.
That's where my minimum price came from.
It's based on production costs
and
that's my starting point,
then I worked my way up.
Soybeans, if you look at recent years,
I'm projecting
the cost of producing soybeans in the year ahead,
somewhere around
8.75 of bushel give or take,
and if you think of a normal
Southern Minnesota basis,
again, I'm challenging you
to think about Nebraska and your own farm here.
But my reasoning is
75 under at harvest would be a
normal basis if there is such a thing,
which means my minimum price in soybeans
would be 9.50 a bushel,
and November soybeans, 9.50 to 9.60.
And guess what?
November 21 soybeans are trading at
10.60.
They're a dollar over my minimum.
We have something to talk about there.
By the way here's our
FINBIN website,
you can look at it yourself
for Nebraska, for different regions,
www.finbin.umn.edu.
Now,
okay, there's step one.
What's your minimum and it's based on
production cost.
Now, the second part of this,
is we need a maximum price target.
My plan begins at 4.25 December corn,
works its way all the way up to 5.75.
Now, I've got a little asterisk on the maximum price.
I told you how important the minimum price was,
and guess what the maximum price is
not important.
You're gonna see in a moment
how decision dates
make the maximum price kind of unimportant.
But even though it's an important, I need one.
What am I shooting for?
And all I can say to you is
be realistic
about what the upside is.
And let me tell you how I figured out 5.75
or came to that number for an up side.
I went back over the last 30 years
and I picked out three of the best years we have seen.
In terms of December corn futures,
its price rise from January 1
to it's highest level during the year.
These are three incredible years,
all from the second golden age of agriculture,
2007 to 2014.
December '08,
contract, December '12, December '11,
40 to 60% rise,
a 50% rise.
Kicked my minimum of a 4.25.
What's 50% of that?
Well, it's $2.
It's over, a little over $2.
I could justify
based on this history
a maximum price
of $6 on the December contract.
Not because I expect prices to go there,
but because
we've done that in the past.
It's been done.
Now, I don't think,
I'm not predicting it will happen,
it'd be nice if it did happen,
but I'm not predicting it will,
but I can say that that 5.75 is realistic
as opposed to
having a maximum price of $10 a bushel,
which is not realistic in corn.
So
there's, I set this minimum
based on my
cost of production,
I set a maximum
based on some
sense of a realistic upside,
based on the best of the best years,
and now I just layer every
price objective in between.
Let's talk about decision date,
excuse me.
I've got decision dates,
March 29th, April 27th,
may 26,
June 10, June 24.
What the heck is that about?
Well,
I've got price,
after,
notice I had date
on the initial pricing step,
4.25 December futures,
3.75 cash.
Why don't I have a date?
I need to get there or I don't.
If I don't get there, I'm not taking action,
except for this
desire to get to $4 a corn and
maybe justifying taking action
later in the spring, something modestly
lower.
Every other
price objective
has tied to it, a date.
So our price at this price or at this date,
this price or this date.
If I reach a decision date,
before I get to the price target,
I'll price the grain
as long as the price is above my minimum.
Let me take it back here.
Let's say we get a rally.
We got
4.25 December futures show up in early January.
I get step one
done,
because I've reached my price objective.
Now, between January
and March 29th, my first decision date,
December corn gets up to 4.50,
but never 4.55, that's my next step.
It never gets the 4.55,
gets the 4.50 and March 29th,
it's at 4.32.
I never reached my price objective,
but the decision date is here.
What am I gonna do?
If I'm above the minimum,
if I'm above 4.25,
I'm gonna press that gray.
If I'm below 4.25, I'll pass.
Don't throw out the plan,
I'll wait for another, hopefully,
cross my fingers and hope I get now shattered 4.25.
You see how that's
gonna be making me move forward.
Decision dates,
make this a real plan for action.
I love to tell the story,
when I first started talking about marketing plans
and
I think my marketing plan is,
it fits on one piece of paper,
it's in large print,
it's pretty simple
and straightforward to follow,
but I had a producer stand up and say,
"I've got a better marketing plan than you
and it's more simple."
And
to put it in today's terms,
this was 20 years ago,
let's put it in today's terms.
He said,
"You show me $5 corn
and I'll price my corn."
And you know what?
That is a simple plan, isn't it?
And yet we don't have $5 corn.
And in fact,
$5 corn may not show up for next two or three years.
That's not a plan for action.
That's an excuse to do nothing,
waiting for
an unrealistic price
or
gathering up one hell of last story during the farm
waiting for that price.
Now,
you understand what the decision date is,
we have to ask,
what's so special about March,
April, may, and June?
Why,
they're all in that cluster,
that four month period?
Well,
here I'm gonna take you,
a little history, I showed it to you briefly before.
This is December corn futures over the last two decades,
2000 to 2020.
I'm looking at it twice a year.
First on May 1,
that's planting,
that represents planting time.
Five months later, I look at the December contract again,
October 1,
that's harvest time.
Now, if life was a coin flip,
you would say that,
you know, over 20 years,
10 years it goes up, 10 goes down and,
you know, shrugged their shoulders and who knows.
That's not what we see though.
Over the last 20 years,
21 years,
15 years, the market has gone lower
from spring to fall.
And in fact, if you look at the lower right-hand corner,
you'll note that the average decline of December futures
from May 1 to October 1
is 30 cents bushel,
that's the average.
This is not a certainty,
but it is a strong seasonal tendency,
and in fact, I tell people that this
seasonal tendency for corn
to go lower
after harvest is the strongest seasonal tendency
I can find in any
agricultural commodity.
Soybeans have a similar tendency.
Not quite as strong,
but it does speak to the need for a minimum price.
Here it is on,
here's the average
look at the corn market.
Let's take a look at the value
of this.
Again,
introduce you to some characters to think about this
tendency.
You know Barney.
He has no marketing plan,
no storage, he prices at harvest and he's our benchmark.
Now, I wanna introduce you a new player.
Remember on Terry,
she made 20% sales,
March, April, May and June,
regardless of price.
High, lower, indifferent,
Terry took action.
Terry Timer
takes action on the exact same days with a difference.
Terry has a minimum price
and that minimum price is tied to her cost of production.
And in 2021, she's not gonna take action
if December corn is less than 4.25
or November soybean's less than 9.75.
Well,
I've got,
you may not be convinced,
only 32 years of data.
Terry is beating Barney
by 16 cents a bushel on average
in corn,
she's beating Barney by 32 cents a bushel
on average in soybeans.
She has beaten Barney
or equaling him
in 27 of 30 years,
two years in corn,
23 at 32 years in soybeans,
nothing is a 100%.
By the way,
Terry also prices,
she prices 80% per insured bushels,
the final 20%
priced at Barney's price
and part of these numbers.
Let's take away
the eight years
when
Terry's opportunity never got to production costs.
In other words, she did nothing
in eight corn years
and in seven soybean years.
And why mean is,
she just ended in in those years
where it doesn't reach her minimum,
she just prices everything at harvest like Barney.
So I've taken away though those
tied years,
where they were the same
and focused on
the remaining years,
24 years in corn,
25 years in soybeans
where Terry actually took action.
And then soybeans,
she beat Barney
by an average of 21 cents a bushel in those years,
41 cents and soybeans.
But not every year.
It's a story tendency but it's not a certainty.
She beat Barney 19 of 24 of those corn years.
That means Barney
beat Terry,
five of 24 years.
In
soybeans,
Barney beat Terry nine of 25 years.
Nothing is a 100% here,
but there seems to be some value here.
By the way,
if you'd look at November soybeans of since 2000,
and you gonna say, okay,
the tendency
to go lower was
not quite six out of 10 years.
That's not a very impressive tendency.
But you know what?
Soybeans in particular
showed the need for a minimum price.
So what I've done here,
I've taken four years out of the equation.
Four years,
2001,
2002,
when November futures were trading
$4.5 in the spring,
clearly under production costs.
And even the last two years,
where in May of 2020,
May of 2019,
you had November futures trading at
8.50 to 8.75,
or a cash price
of $8 and sometimes less per bushel.
Clearly under production costs.
Take years out of the equation,
look at the remaining
17 years,
and seven of those 10 years went lower
by an average of 47 cents a bushel.
That minimum price
is very important to me.
There it is graphically,
and
yeah, Terry's tried to get something done
in late March, April, May, June.
Well, last part I wanna talk about here,
the least important part of the plan is pricing tools,
and I'm not gonna go through pricing tools
as much as just give you my general philosophy here.
I'm very vague.
First of all, I say TBD to be determined,
to be determined by what?
In my humble opinion,
the tool you choose to price
is a tactical decision
and it's a decision you make
when it's kind to take action.
You've reached your price objective,
you're at a decision date,
now you look at the landscape of what's available.
And pricing tools come in a
couple of forms,
fixed price tools,
the forward contract, selling futures,
futures fixed or HTA, they're sort of kissing cousins.
You're setting a price,
no upside.
Minimum price tools include forward contracting,
and
re-owning with the call or simply buying a put option,
and you could also consider technical tools
following trends and things like that.
Fixed price tools.
Yeah, the good news,
if I went out today and priced new crop soybeans,
which is something to think about
with the November contract over 10.60,
I could lock in a Southern Minnesota price of
very close to $10 a bushel, okay?
The good news is
I know what I'm getting next fall for soybeans,
something close to $10 a bushel.
The bad news is
if all the noise we hear about
bull markets and things continue,
I get $10 a bushel and my neighbor gets 11.50 or 12.
That's the bad news,
I have no upside.
I have no downside either.
My neighbor might be getting $8 and I got 10.
Minimum price stools give me that upside potential.
If I buy a put,
I'm not hard committed
to a final price,
but of course
options cost money,
and,
you know, you're in a low margin business so
you have to balance that.
Here's my philosophy on this.
In general,
I prefer
to use simple low cost tools early in the plan.
I think I had six or seven steps in my marketing plan.
In the first three steps,
I'm gonna keep it simple,
I'm just gonna get it priced,
and then hope like, hell, I'm wrong,
'cause they've got more to price.
In other words, hope
that in the months ahead, I said,
"Geez, I should've never sold that
so cheap and so soon,
because the market's gone up.
That'd be a good situation to have."
I'll save options
or technical tools,
this desire to follow a trend.
I'll save that for later steps in the plan.
I'll consider them
later in the plan.
A couple of advantages there.
First of all,
time value of options
gets cheaper as time gets shorter,
so maybe I can cut my costs of options.
The other reason is
if I'm looking to follow a trend,
you know,
shop trends are more apt to be to occur
in the summer months during the growing season
as opposed to January, February, March.
Well,
I do have a book out there,
it's called "Grain Marketing is Simple",
the second edition, you can find it at our website.
We have sold it out.
We now go through lulu.com
and sell them one at a time.
If you're interested, it's available online for
39.95, $40,
and
I hear it makes a great Christmas gift.
I also hear that
if you can't get the sleep at night,
I've had people tell me that
five minutes with my book and insomnia is cured,
so be it.
There's my 2021 pre-harvest marketing plan for corn,
4.25 minimum price,
we're currently at about 4.14,
not far from starting.
Soybeans,
9.75 minimum price and son of a gun that,
that's yesterday's quote.
I think we're at 10.64 this morning,
we're a 90 cents above my minimum.
My plan starts January 1,
I haven't done anything yet,
but you know what I feel like doing something,
time to get in.
I have posted up here
templates,
you might wanna print
for developing your own plan for corn soybeans.
You can do it for winter wheat too.
This is an imperfect plan,
but I'll take my imperfect plan
over no plan at all because
when I write a plan,
I've laid out a benchmark from my goals in the year ahead.
And if something changes,
we live in a hell of a world,
people, things change.
If something changes,
I can go back to my plan
and think about how I adapt.
If I don't have a marketing plan,
you're winning at the start with,
and how do you adapt that, okay?
So I'll take my imperfect plan over no plan at all.
I'm often asked if I'm a bull or a bear and
I have opinions,
but my opinion and
five bucks will get you a latte in the twin cities.
I've done better than a bull or bear,
I'm T-rex.
That's the Plaza theater of wax and San Antonio,
March, 2017.
I love that photo.
Okay,
quick review.
Step one, set pricing targets.
That minimum price objective is very important,
the maximum price objective, less important.
Pricing grain below production costs,
I'm willing to do so.
I've talked about how to get $4 corn,
but I'm not ready to
reach out right now.
Set your decision dates,
seasonal trends support much to June for those dates.
And finally on pricing tools,
I like
simple low cost tools early in the plan,
and then later in the plan,
I'll consider getting fancy with the options
or technical tools.
Okay, Kayy, thank you very much,
and
I think I've got one more round coming up here.
-: That's correct Ed, thank you.
There's a few questions in the chat box.
Why is cost of production your minimum price threshold?
The market doesn't care what your cost of production is.
-: Well, I'll tell you...
The commenter is absolutely right,
that once the crop is harvested
and once you've planted it,
the market does not care what your cost of production is.
It doesn't know you, the cost of production.
However,
in developing a pre harvest marketing plan
and looking ahead,
six months, eight months, a year,
I think it's a relevant issue,
because
I would like to cover my costs or better.
So I think it's
a relevant thought
in developing a pre-harvest marketing plan.
I have another talk on post-harvest marketing,
I never mentioned production costs,
because just as you said,
once you've harvested it,
the market doesn't care what your costs are
Second question,
you may have touched on this and I missed it.
Shouldn't the minimum price threshold be market driven?
-: You mean looking at,
I'm gonna take that as saying shouldn't I
look at the outlook,
look at the smart people who look at exports in that
and adapt it accordingly?
You know,
one of my,
hard way about my approach and somebody may be asking this,
you're gonna look at what I did and you're gonna say
you just wrote a marketing plan
and you never mentioned China,
you never mentioned the ratio in Iowa,
you never talked about planning prospects in '21,
you never looked at the outlook.
And that's right, I did not.
I write a plan without looking at that.
Now,
if you wanna take this approach,
and now shade it to your own biases,
I'm okay with that.
But keep in mind,
they are your biases and you might be wrong.
-: And the last question, does Barney and Terry
example include marketing costs.
-: Well, Barney has no marketing costs,
he just sells it at harvest price.
And yes,
Terry,
I believe I'm assuming 1 cent
brokerage fees
on her use of futures.
Yes.
-: Okay.
Well again, if you have additional questions
regarding any of Ed's presentation,
at the start and now there's second one
feel free to put those in the chat box.
We're gonna take another break and again, you can
submit your guess to
where the soybean field might be
during the breaks.
So with that
we'll see you back in about 10 minutes.