Marketing Strategies for Volatile Markets Frayne Olson, PhD Crop Economist/Marketing Specialist Director – Burdick Center for Cooperatives frayne.olson@ndsu.edu 701-231-7377 (o) 701-715-3673 (c) NDSU Extension N.D. Agricultural Experiment Station Dept. of Agribusiness & Applied Economics

What Causes Market Volatility? No one can predict the future! If we knew what the future would bring, marketing would be easy. The futures market provides a consensus price for grains/livestock in the future, given the information available today. Price volatility occurs when new information enters the market that dramatically changes our view of the future.

What Causes Market Volatility? The two most common sources of uncertainty are weather and politics/policy. As the level of uncertainty increases, people’s planning horizons become shorter. However, decisions must still be made. NOTE: Doing nothing is still a decision!

What Impacts Your Marketing Plan? Constraints: Harvest Labor & Planting Labor. Storage & Drying Capacity. Cash Flow Needs – rents, machinery payments, operating loan, land loan, etc. Income Tax Management. What is your goal for pricing? Sell at a profit (what is that number?) Highest price possible. Sell for higher than my neighbor!

What Impacts Your Marketing Plan? Constraints: Harvest Labor & Planting Labor. Storage & Drying Capacity. Cash Flow Needs – rents, machinery payments, operating loan, land loan, etc. Income Tax Management. What is your goal for pricing? Sell at a profit (what is that number?) Highest price possible. Sell for higher than my neighbor!

Marketing Plans - 101 Reminder – Four key parts to a marketing plan: Set pricing objectives. Set timing objectives. Choose the appropriate tool. Monitor markets and update if major changes occur.

Marketing Plans - 101 The hardest part of creating a marketing plan is the first thing that must be done! Setting Price Objectives: What are current price trends? What event or condition might change this trend? What changes should we watch for? What is the upside potential? What is the downside risk?

My View – A Starting Point Key variables to watch: First killing frost in corn belt. Watch both corn and soybeans. Impact – low test weight corn and frozen soybeans. Strong likelihood of short-term price rally. How High? November 8, 2019 USDA Production report and WASDE. Updated yield estimates. Final production values will be released in 2019 Crop Production Summary in early February 2020.

My View – A Starting Point NOAA - National Weather Service

My View – A Starting Point NOAA - National Weather Service

My View – A Starting Point Key variables to watch: U.S. – China trade negotiations: Steady progress is required to support crop prices. May – July is most likely time frame for an agreement (my opinion!). Export sales levels: Weekly updates. Usually limited “shock value” but impacts market psychology. Steady sales will support prices and limit downside risk. Weak sales will allow prices to drift lower.

December CBOT Corn Futures DTN Prophet X – 09-11-19 pm

November CBOT Soybean Futures DTN Prophet X – 09-11-19 pm

December MGEX Spring Wheat Futures DTN Prophet X – 09-11-19 pm

My View – A Starting Point Will the market pay you to store grain? What is the “carry in the futures market”? What will happen to basis? Basis Changes in ND/NW-MN Corn – will remain strong unless the region has a problem with low test weights. Soybeans – little change until China trade agreement is reached. Spring Wheat – some improvement beginning in January.

Carry In The Market DTN Prophet X – 09-11-19 pm

Economics of Storage NDSU Grain Storage Cost Calculator

Strategies for Product Sellers ACTION Basis Contract Minimum Price Contract Sell Cash (or Forward Contract) and Buy Calls Sell Cash (or Forward Contract) and Buy Futures ACTION Store or Wait to Forward Contract Delayed Pricing Contract Minimum Price Hedged-to-Arrive (HTA) UP FUTURES Futures Futures Cash Cash TIME EXPECTED CHANGE FOR FUTURES AND BASIS TIME BASIS STRENGTHENS BASIS WEAKENS ACTION Hedge (Sell Futures) Hedged-to-Arrive (HTA) Contract Buy Put Option ACTION Cash Sales Forward Contract FUTURES Futures Futures DOWN Cash Cash TIME John Ferris Michigan State University TIME

Questions?