Launch Your Pre-Harvest Marketing Plan

Launch Your Pre-Harvest Marketing Plan

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Launch Your Pre-Harvest Marketing Plan
Pre-harvest marketing is a broad view of the market, trying to take advantage of early seasonal price tendencies. Launch and Land Your Post-Harvest Plan Post harvest marketing is a practical approach to the current environment, adapting to market signals and incentives. Call CFFM at for more information about how to sponsor a “Winning the Game” workshop in your town.

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Explore the Key Elements of a Pre-Harvest Marketing Plan
Develop your own Marketing Plan Use your Plan in a Simulation Game

What is a Marketing Plan?
A marketing plan is a proactive strategy to price your grain that considers your financial goals, cash flow needs, price objectives, storage capacity, crop insurance coverage, anticipated production, and appetite for risk Proactive, not reactive, not overactive Examples of a reactive strategy include (1) selling grain to pay bills and (2) selling grain at harvest because I have no other alternatives. Overactive strategies include “re-owning” and “reselling” grain using futures and options. A proactive strategy aims to price my grain just once.

Marketing is Important!
The average farm earns cents per bushel (including gov’t payments). Just 10 cents more per bushel could increase net income by 33-50%! Great marketing is not finding the high price. It’s finding an extra cents per bushel with a solid plan that avoids mistakes. Point: I am not seeking an extra dime by outsmarting the market and picking the highs and lows. I find the dime (or quarter!) in eliminating mistakes. One of those mistakes is the reluctance towards pre-harvest marketing.

Why do I need a Marketing Plan?
Fear and greed are powerful emotions - they will affect your decisions. A solid plan is the only effective weapon against these emotions “Plan your trades, trade your plan”

Tillman Farm Pre-Harvest Corn Marketing Plan
Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013.

Life Insurance How many of you have life insurance?
Do you hope to collect on your insurance this year?

Health Insurance How many of you have health insurance?
Do you have the best insurance money can buy? What if the government paid part of the premium? Hopefully it will be more than a George.

Crop Insurance Crop insurance is like health insurance for your crops.
The better the policy coverage, the lower the deductible, the higher the premium. Unlike health insurance, the government pays a portion of your crop insurance premium.

Crop Insurance Subsidy
Coverage Level 50 55 60 65 70 75 80 85 Gov’t Subsidy% 67 64 59 48 38 You pay% 33 36 41 45 52 62 Lets look at the 75% column. For every $1 worth of insurance you purchase, the government pay $.55. My spouse is a shopper and even she would say that is a deal. Lets think a little about insurance. If you buy $1,000 of car insurance, do you think the company expects to pay out more than $1,000 on average to you for claims?? No, probably not or they would be raising your rates. The way crop insurance is structured, the government is paying part of your premium – 55% at the 75% insurance level. If you were an average US producer and of course there isn’t such a thing, crop insurance is a paying proposition. More is paid out in claims that what producers spend for the insurance. Bottom line, crop insurance is a good deal.

Enterprise vs. Optional Units Government Subsidy
Coverage Level 50 55 60 65 70 75 80 85 Optional 67 64 59 48 38 Enterprise 77 68 53 % savings* 19 25 36 40 42 39 Optional – all of a crop in a section Enterprise – all of a crop in a county, minimum two townships (min 40 acres) * since 2009

Federal Crop Insurance
CAT Catastrophic Risk Protection Lowest level of YP. Covers 50% of the crop yield at 55% of the projected price. Only cost is a small administrative fee per crop. YP Yield Protection Offers higher level of insurance coverage than CAT. Choices include 50 to 85% of yield in five percent increments. Covers losses of crop yield only. I move pretty quickly through these general slides and the MPCI features slides. Most producers are up to speed on these basics.

RP Revenue Protection Same coverage level choices as Yield Protection. In addition to yield, RP adds protection against revenue losses caused by price decreases and increases. RP/HPE Revenue Protection with Harvest Price Exclusion RP/HPE has protection against revenue losses caused by yield and price decreases only. There is no protection if prices increase.

GRP Group Risk Plan Insures against county level yield losses only. Based on an index of expected county yields for a given crop. Offers no farm level yield coverage. GRIP Group Risk Income Protection Insures against losses of revenue. Adds a price component to GRP. GRIP compared to GRP is like comparing the Revenue Plan to the Yield Plan. There were no major changes to these programs for Since these protect against risk at a county level, they are not a very good choice if you have a plan to pre-harvest market your grain.

Yield Protection (YP) Protects against losses to crop yield only
Based on actual production history (APH) or County T Yield Replant & prevented planting coverage included Coverage based on the Projected Price, APH, and percent coverage selected Premium payments subsidized

Yield Protection (YP) Coverage calculation Coverage Level in $/Acre
APH Yield x Coverage % = Guaranteed Bushels Guaranteed Bushels x Projected Price = Coverage Level in $/Acre

Revenue Protection (RP)
Protects against revenue loss due to yield loss and/or price changes. Converts your bushel guarantee to a dollar guarantee per acre. Same as Yield Protection Uses APH or County T Yields Coverage choices range from 50 to 85% Premium subsidized, based on coverage Replant & prevented planting included Converts your bushel guarantee in a revenue guarantee. Instead of insuring bushels you are now insuring a minimum dollar amount per acre. You will protection for both yield and price. Move quickly through the items that are the same as MPCI

Offers 3-way protection Coverage if yields are low Coverage if prices fall Coverage if a short crop and prices rise CRC offered protection in 3 way. If yields are low, if prices are low, and if you pre-harvest grain and the prices go way up. I think this is the most confusing point for farmers. The price protection is really two different kinds of protection. It isn’t fair to just say it protects you against price changes. We need to help differentiate between prices going up and prices going down.

Price Provisions Corn Dec CBOT February October Soybean Nov CBOT
Crop Contract Projected Price Harvest Price Corn Dec CBOT February October Soybean Nov CBOT Spring Wheat Sept MGE August For all combo policy options, the projected price used. This is change for the old APH policy where RMA set a price that often very different from the revenue products. It is calculated before March 15 (sales closing date). It determines the minimum revenue coverage. For the revenue products there are two prices that are used. The first is the projected price. The second price is calculated at harvest and is called the harvest price. The projected price for corn is the February average of the December CBOT futures price. For beans it’s the Feb average of the November contract. These are simple averages of the daily price closes. The harvest prices use the same contracts except it is the October average.

Projected Price Corn Dec CBOT February October Soybean Nov CBOT
Crop Contract Projected Price Harvest Price Corn Dec CBOT February October Soybean Nov CBOT Spring Wheat Sept MGE August Projected Price Announced early March. Used to calculate the minimum revenue guarantee. APH x % Coverage x Projected Price The projected price announced in early March is used to calculate the minimum revenue guarantee for all three of the combo options.

Harvest Price (RP & RP-HPE)
Crop Contract Projected Price Harvest Price Corn Dec CBOT February October Soybean Nov CBOT Spring Wheat Sept MGE August Harvest Price Announced early Nov. If higher than projected price, used to calculate a new higher revenue guarantee for RP. The harvest price is used to calculate a new revenue guarantee if it is higher.

Projected Price 2013 Corn Soybeans Barley Wheat Corn and soybeans will be announced in early March 2011.

Price Guarantees The maximum Harvest Price is limited two times the Projected Price. Example, projected price $11.00 Harvest price max is $22.00 No limit on the minimum harvest price Historically, these limits have never been exceeded. There were some more restrictive limits in the past that were exceeded one year.

RP Indemnity (Loss) Payments
The Harvest Price is used to value your production If the Harvest Price is lower than the initial Projected Price, it’s as though the amount of bushels covered by insurance increases The first place to start here is with the word indemnity – it is not a commonly used word and farmers might not know what you are talking about. It’s the amount that you get paid when you have a loss. In this slide and the next one, try to make the point that revenue insurance really has two features that protect you on price. The first is made in the slide above. When prices fall, you are still guaranteed a minimum revenue.

RP Indemnity (Loss) Payments
If the Harvest Price is higher than the initial Projected Price, the revenue guarantee increases -- but so does the value of your harvested production This is the feature in RP that protects you if you have pre-harvest marketed grain The second feature is that when prices rise, your guarantee increases. This protects you if you forward price the crop and come up short bushels at harvest. We see examples of how this works a little later.

RP- HPE (Harvest Price Exclusion)
With the “harvest price exclusion,” the revenue guarantee does not increase if the Harvest Price increases. When using RP coupled with a pre- harvest marketing plan, do not choose the “harvest price exclusion.” Re-emphasize the need to not choose the harvest price exclusion.

Crop Insurance Comparison
Same Price Yield (YP) Revenue (RP)

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Assume an APH of 40 bushels. Your APH is used with either YP or RP

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Lets look at the 75% coverage level.

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Projected Prices for 2013 Corn $x.xx Soybeans $x.xx For multi-peril the guarantee is 75% of 40 bu which is 30 bushels.

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A For multi-peril the guarantee is 75% of 40 bu which is 30 bushels.

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Minimum Revenue Guarantee APH x % coverage x Projected Price 40 bu x 75% x $13.00 = $390.00 For RP this is converted into a revenue guarantee by multiplying time the $13.00 price to get $390.00

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Low harvest yield

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price No change in price from spring to harvest

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price New Guarantee New guarantee for RP only when the harvest price is higher than the projected price.

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price New Guarantee Indemnity $104.00/A With a flat price the indemnities are the same.

Same Price Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price New Guarantee Indemnity $104.00/A Indemnity Guarantee – Actual Production x Harvest Price $ – (22 bu x $13.00) $ – $ = $104.00 With a flat price the indemnities are the same.

Price Decrease Yield (YP) Revenue (RP) Lets take a look at a price decrease at harvest.

Price Decrease Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price New Guarantee Indemnity $104.00/A Everything stays the same except for the lower harvest price for the revenue products.

Price Decrease Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $9.00 New Guarantee Indemnity $104.00/A $192.00 There is no new guarantee because the harvest price is lower.

Price Decrease Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $9.00 New Guarantee Indemnity $104.00/A $192.00 Indemnity Guarantee – Actual Production x Harvest Price $ – (22 bu x $9.00) $ – $ = $192.00 To calculate the indemnity you multiply 22 bushels times the $9.00 harvest price and subtract it from the guarantee.

Price Increase Yield (YP) Revenue (RP) Now lets look at an increase in price.

Price Increase Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price New Guarantee Indemnity $104.00/A Everything stays the same except for the higher harvest price for the revenue products.

Price Increase Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $17.00 New Guarantee Indemnity $104.00/A Everything stays the same except for the higher harvest price for the revenue products.

Price Increase Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $17.00 New Guarantee $510.00/A Indemnity $104.00/A

Price Increase Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $17.00 New Guarantee $510.00/A Indemnity $104.00/A Final Guarantee With a higher harvest price, a new Guarantee is calculated. APH x % cover x Harvest Price 40 bu x 75% x $17.00 = $510.0 It’s the same math we used before to figure the base, 40 bu x 75% x $17.00 the new harvest price give a new guarantee of $510.

Price Increase Yield (YP) Revenue (RP) APH 40 bu/A Coverage 75% Projected Price $13.00 Guarantee 30 bu/A $390.00/A Harvest Yield 22 bu/A Harvest Price $17.00 New Guarantee $510.00/A Indemnity $104.00/A $136.00/A Indemnity Guarantee – Actual Production x Harvest Price $ – (22 bu x $17.00) $ – $ = $136.00 Then to calculate the indemnity you multiply 22 bushels time $12.00 and subtract from the new guarantee.

Revenue-Based Insurance Advantages
May have larger indemnities than yield-based crop insurance 3-way coverage means a greater chance of indemnity payment May be competitively priced with yield-based crop insurance Can use it as an integral part of your marketing strategy!

Fact or Fiction # 1 “It’s February – I don’t dare forward price 40% of next fall’s crop now – I might not get it planted!” FICTION YP, RP, & RP-HPE automatically include prevented planting coverage at 60% of your coverage level. For example, at the 75% level, you have 45% coverage if you don’t get the crop planted What are the odds that you won’t get some of the crop planted?

Fact or Fiction # 2 “My APH is 150, I have 75% RP, and I just harvested 155 bushels per acre. I can’t have a crop insurance loss.” FICTION, Yes You Can In 2004, the projected price in February was $ The harvest price was $1.99. Your minimum revenue guarantee was $318 (150 bpa x 75% X $2.83). Your harvest of 155 bpa x $1.99 is only $308. You have a $10 indemnity coming. This was the case for several corn producers in 2004.

Fact or Fiction # 3 “My spouse went to a meeting & tells me I am wasting my money if I buy RP and don’t have a plan to pre-harvest market my grain.” FACT RP has the feature that increases the revenue guarantee if the harvest price is higher than the projected price. You pay for this feature. The intent of this tool is to allow you to pre-harvest market your grain. Art Barnaby the father of CRC insurance once said, if you purchase CRC and don’t forward price your grain, you are mis-using the product.

Fact or Fiction # 4 “I have RP & forward priced 75% of my APH. Yields are bad, prices have skyrocketed, I can’t deliver on my contracts – I am going to lose my shirt” FICTION, You Are Covered The final revenue guarantee with RP is re-calculated using the harvest price if it is higher than the projected price. The insurance increase will offset the cost of buying the higher priced grain to fill your contracts. Let’s look at an example

I can’t deliver, I’m going to lose… Fiction!
600 acres of soybeans 40 bu/acre APH 75% coverage RP insurance 600 x 40 x 75% = 18,000 bushels -- insured amount to pre-harvest market You get it sold and August turns dry This is an expansion of our earlier one acre example to a whole farm

Marketed 18,000 bu pre-harvest (75% of APH) at $12.70 = $228,600 Only produced 13,200 bu Buy back 4,800 bu. at $ $80,640 (price includes extra $.10 for purchase) Crop insurance indemnity $81,600 Gross Return =$229,560 In addition to what is said, make the point that this isn’t a great year -- we don’t buy insurance to make money -- we purchase it to keep us in business so we can go again next year. You might also make the point that in this example we are showing the revenue from all forward price sales and them buying back the bushels the producer is short. In reality the elevator would likely net out the transactions. (transition to next slide) Ahhh, but you didn’t figure in the cost of the insurance.

YP RP RP-HPE Premium per acre $9.04 $12.34 $10.18

YP RP RP-HPE Premium per acre $9.04 $12.34 $10.18 18,000 bu at $12.70 $228,600 Repurchase beans (-) -80,640 Total Indemnity (+) +62,400 +81,600 +9,600 Total premium (-) -5,424 -7,404 -6,108 Net result $204,936 $222,156 $151,452 Development Note: Rates for this example were Brown county, soybean, non-irrigated, basic coverage, 75% level. They were proportioned to the $13.00 price level. There is some concern that the 40 bu is low for this area. With lower prices, I used the optional coverage selection. With the high prices I went back to basic coverage for the calculations.

RP- HPE (harvest price exlusion) is a bad choice if you plan to pre-harvest market grain. The spring minimum guarantee is also the final guarantee – but it uses the harvest price to value production. YP RP RP-HPE Premium per acre $9.04 $12.34 $10.18 18,000 bu at $11.70 $228,600 Repurchase beans (-) -80,640 Total Indemnity (+) +62,400 +81,600 +9,600 Total premium (-) -5,424 -7,404 -6,108 Net result $204,936 $222,156 $151,452

The Facts of Revenue-Based Crop Insurance
Covered High Yield Low Yield Low Price High Price

The Facts of Revenue-Based Crop Insurance
Covered Tax Problem! High Yield Low Yield Low Price High Price

(2) Decision dates Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. (1) Pricing targets (3) Pricing tools & trump cards

Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. (1) Pricing targets

Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. I have minimum price objectives!

Pricing Targets Choose your minimum* price threshold
Cost of production (pre-harvest only) Focus on local costs, not your costs See appendix for detailed costs of production Choosing your minimum price objective is a very important decision. The ”right” decision is hard to put your finger on but consider these cautionary notes. If you set your minimum price too low, you run the risk of selling too much, too soon and at lower prices. Set your minimum price too high and you run the risk of doing nothing. For example in 2005, if my minimum price had been just 15 cents higher ($2.65 vs. $2.50), I would have made just one small sale and missed out on a great move lower and opportunities to profit with a big LDP. Why focus on local costs and not your costs. Your costs are important, but if your costs are 50 cents high compared to you neighbors, you need to find a workshop on lowering your costs. *Your most important choice in developing a pre-harvest marketing plan!

Cost of Production - Corn Penn State 2011 Agronomy Guide Crop Budgets (following soybeans)
Your Farm Yield 150 bu. _______ Direct costs (seed, fert, chem, etc) $391.14 Machinery Ownership $34.17 Land charge $100.00 Total cost per acre $525.31 Cost of production $3.50 Other items to consider would be a charge for labor and management and a deduction for the direct payments. Table : Corn grain after soybeans, conventional tillage, Pennsylvania, 2011 estimates

Table 1.12-5: Full-season soybeans, Pennsylvania, 2011 estimates
Cost of Production - Soybeans Penn State 2011 Agronomy Guide Crop Budgets (full season soybeans) Soybeans Your Farm Yield 50 bu. _______ Direct costs (seed, fert, chem, etc) $196.80 Machinery Ownership $12.05 Land charge $100.00 Total cost per acre $310.85 Cost of production $6.22 Other items to consider would be a charge for labor and management and a deduction for the direct payments. Table : Full-season soybeans, Pennsylvania, 2011 estimates

Cost of Production - Wheat Penn State 2011 Agronomy Guide Crop Budgets
Your Farm Yield (+ straw valued at $187.50/acre) 75 bu. _______ Direct costs (seed, fert, chem, etc) $310.27 Machinery Ownership $22.54 Land charge $100.00 Total cost per acre $432.83 Cost of production $3.27 Other items to consider would be a charge for labor and management and a deduction for the direct payments. Table : Small grain, no-till practices, Pennsylvania, 2011 estimates

Cost of Production - Corn FINBIN Southern MN Average, Cash Rent ($/bushel)
2011 actual $4.36 2012 estimated1 $4.63 2013 projected2 $4.94 The break even price to cover all costs, net of government payments, including a return to labor & management 1 CFFM estimate 2 CFFM projection assumes 175 bpa, $231/acre rent and no direct payments in 2013 Cost of production from the farm management associations. This is the net you need to receive from the market to break even. The direct government payments have been subtracted to arrive at this number. More detailed information is available in the appendix. Development note. Used COP talk estimates plus $30 labor/mgmt charge. Assume $24 direct payments and 175 bu yield.

Cost of Production - Corn
FINBIN Southern MN average, cash rent acres Cost of production from the farm management associations. This is the net you need to receive from the market to break even. The direct government payments have been subtracted to arrive at this number. More detailed information is available in the appendix. Development note. Used COP talk estimates plus $30 labor/mgmt charge. Assume $24 direct payments and 175 bu yield. The break even price to cover all costs, net of government payments, including a return to labor & management. *CFFM projection assumes 175 bpa, $231/acre rent, no direct payments in 2013

Cost of Production - Soybeans FINBIN Southern MN Average, Cash Rent ($/bushel)
2011 actual $9.80 2012 estimated1 $9.87 2013 projected2 $11.07 The break even price to cover all costs, net of government payments, including a return to labor & management 1 CFFM estimate 2 CFFM projection assumes 50 bpa, $231/acre rent and no direct payments in 2013 Cost of production from the farm management associations. This is the net you need to receive from the market to break even. The direct government payments have been subtracted to arrive at this number. More detailed information is available in the appendix. Development note. Used COP talk estimates plus $30 labor/mgmt charge. Assume $24 direct payments and 175 bu yield.

Cost of Production - Soybeans
FINBIN Southern MN average, cash rent acres Cost of production from the farm management associations. This is the net you need to receive from the market to break even. The direct government payments have been subtracted to arrive at this number. More detailed information is available in the appendix. Development note. Used COP talk estimates plus $30 labor/mgmt charge. Assume $24 direct payments and 175 bu yield. The break even price to cover all costs, net of government payments, including a return to labor & management. *CFFM projection assumes 50 bpa, $231/acre rent and no direct payments in 2013

Pricing Targets Choose your maximum* price target
This plan starts at $5.50 Dec corn and works up to $7.50 Dec Min and max price targets form “bookends” for all other price targets What is a realistic maximum price objective? In the age of ethanol, I think it is important to emphasize the need for a realistic maximum price. Also emphasize the possibility of using options or following the trend as ways around the maximum. Once they understand how decision dates and trump cards work in the execution of a plan, they will see why the maximum price objective is the least important piece of a pre-harvest marketing plan. *Your least important choice in developing a pre-harvest marketing plan.

Pricing Targets Chicago December Corn Futures, 1990-2012
Contract Years with the Greatest Price Rise from Jan 1 forward Jan 1 price Highest price (Jan 1 to exp.) Highest price vs. Jan 1 Dec’08 $4.80 $7.88 $3.08 Dec’12 $5.90 $8.39 $2.49 Dec’11 $5.53 $7.75 $2.22 average $2.33 Here’s a different approach to defining a maximum price target, based on historical price changes but not wedded to past or present price levels. The following table shows the 3 years since 1990 with the greatest price rise from January 1 and the highest price in the contract delivery year. For example, on January 3, 2011, the Dec’11 corn futures contract closed at $5.53. From January 1 to expiration, the highest price attained by this contract was $7.75 per bushel. That figure is $2.22 per bushel higher than the price on January 1 and the third greatest price rise in a December contract since 1990. This approach can result in a maximum price objective that looks too high. Use your judgment to adjust the maximum to your sense of realistic. Again, it is the least important figure in the plan.

Pricing Targets A process to set minimum and maximum price targets
Select a minimum price threshold based on local production costs Add an amount in line with a figure from the previous table to create a maximum price. Use judgment to adjust this figure You now have min and max price targets to “bookend” all other price objectives In the age of ethanol, I think it is important to emphasize the need for a realistic maximum price. Also emphasize the possibility of using options or following the trend as ways around the maximum. Once they understand how decision dates and trump cards work in the execution of a plan, they will see why the maximum price objective is the least important piece of a pre-harvest marketing plan.

Pricing Targets Chicago November Soybean Futures, 1990-2012
Contract Years with the Greatest Price Rise from Jan 1 forward Jan 1 price Highest price (Jan 1 to exp.) Highest price vs. Jan 1 Nov’12 $12.19 $17.68 $5.49 Nov’08 $11.48 $16.31 $4.83 Nov’07 $7.26 $10.66 $3.40 average $4.57 This is a different approach to defining a maximum price target, based on historical price changes but not wedded to past or present price levels. The following table shows the 3 years since 1990 with the greatest price rise from January 1 and the highest price in the contract delivery year.

Pricing Targets Minneapolis September Wheat Futures, 1990-2012
Contract Years with the Greatest Price Rise from Jan 1 forward Jan 1 price Highest price (Jan 1 to exp.) Highest price vs. Jan 1 Sep’08 $8.67 $13.20 $4.53 Sep’07 $5.06 $8.29 $3.23 $7.99 $10.32 $2.33 average $3.36 Here’s a different approach to defining a maximum price target, based on historical price changes but not wedded to past or present price levels. The following table shows the 3 years since 1990 with the greatest price rise from January 1 and the highest price in the contract delivery year.

Quiz Time! Name three commodities traded at the Coffee, Sugar & Cocoa Exchange.

(2) Decision dates Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013.

Decision Dates If I reach a decision date before a price target is reached, I price the grain.* Decision dates are needed to make it a real plan for action Crop insurance and/or options allow us to forward price with confidence What’s so special about the March to May period in pre-harvest pricing? *As long as the price is above my minimum threshold!

Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. Why March-April-May?

CBOT December Corn Futures, 1990-2012
Year 1-May 1-Oct Change 1990 2.70 2.29 (0.42) 1991 2.53 2.54 0.01 1992 2.12 (0.41) 1993 2.43 0.00 1994 2.58 2.14 (0.44) 1995 2.63 3.11 0.48 1996 3.33 2.90 1997 2.76 2.56 (0.20) 1998 2.62 2.05 (0.58) 1999 2.31 (0.26) 2000 1.99 (0.63) 2001 2.27 2.11 (0.16) 2002 2.20 0.36 2003 2.33 (0.13) 2004 3.17 2.06 (1.11) 2005 (0.21) 2006 2.72 2.68 (0.04) 2007 3.79 3.69 (0.10) 2008 6.32 4.84 (1.48) 2009 4.33 3.41 (0.93) 2010 3.92 4.66 0.74 2011 6.61 5.93 (0.69) 2012 5.39 7.57 2.18 Average 3.23 3.04 (0.19) CBOT December Corn Futures, 17 years (74%) the market declined 6 years (26%) the market improved This table shows a “snapshot” of December corn futures at May 1 and October 1. If the market movement was random, it would be a coin flip as to whether the market moves up or down from May to October. It isn’t, the market declines nearly 3 years out of 4. By the way, some astute listener will note that seven down years in a row seems to be the limit ( ). Wrong! The longest streak of down years is , eight years in a row!

Don’t forget to sell something!
But remember your minimum price…

CBOT November Soybean Futures, 1990-2012
Year 1-May 1-Oct Change 1990 6.55 6.05 (0.51) 1991 6.09 5.89 (0.20) 1992 5.33 (0.72) 1993 5.96 6.18 0.22 1994 6.28 5.38 (0.90) 1995 6.06 6.37 0.32 1996 7.58 7.49 (0.08) 1997 6.96 6.21 (0.76) 1998 6.17 5.15 (1.02) 1999 5.14 4.81 (0.33) 2000 5.80 4.90 2001 4.34 4.52 0.18 2002 4.56 5.42 0.86 2003 5.53 6.87 1.34 2004 7.45 5.35 (2.10) 2005 6.22 5.73 (0.49) 2006 6.26 5.45 (0.81) 2007 7.84 9.92 2.08 2008 11.93 10.53 (1.40) 2009 9.71 9.18 (0.53) 2010 9.76 10.57 0.81 2011 13.74 11.79 (1.95) 2012 13.93 15.60 1.68 Average 7.39 7.16 (0.23) CBOT November Soybean Futures, 15 years (65%) the market declined 8 years (35%) the market improved Snapshot of November soybean futures, market declines around 7 years out of 10. Note that 2001 and 2002, our minimum pricing threshold of $5.55 per bushel kept us from selling too early (and below loan) in the spring.

Don’t forget to sell something!
But remember your minimum price… The strong prices in late June/July are heavily influenced by one extraordinary year – 2008.

Soybeans show the need for a minimum price!
CBOT November Soybean Futures, 7 years (54%) the market declined 6 years (46%) the market improved Year 1-May 1-Oct Change 2000 5.80 4.90 (0.90) 2001 4.34 4.52 0.18 2002 4.56 5.42 0.86 2003 5.53 6.87 1.34 2004 7.45 5.35 (2.10) 2005 6.22 5.73 (0.49) 2006 6.26 5.45 (0.81) 2007 7.84 9.92 2.08 2008 11.93 10.53 (1.40) 2009 9.71 9.18 (0.53) 2010 9.76 10.57 0.81 2011 13.74 11.79 (1.95) 2012 13.93 15.60 1.68 Average 8.23 8.14 (0.09) Five of nine years is hardly great evidence of a strong seasonal pattern. Now eliminate the “low” price years.

CBOT November Soybean Futures, 2000-2012
Remove years when Nov beans <minimum on May 1 CBOT November Soybean Futures, 7 years (64%) the market declined 5 4 years (36%) the market improved Year 1-May 1-Oct Change 2000 5.80 4.90 (0.90) 2001 4.34 4.52 0.18 2002 4.56 5.42 0.86 2003 5.53 6.87 1.34 2004 7.45 5.35 (2.10) 2005 6.22 5.73 (0.49) 2006 6.26 5.45 (0.81) 2007 7.84 9.92 2.08 2008 11.93 10.53 (1.40) 2009 9.71 9.18 (0.53) 2010 9.76 10.57 0.81 2011 13.74 11.79 (1.95) 2012 13.93 15.60 1.68 Average 8.92 8.72 (0.21) Five of nine years is hardly great evidence of a strong seasonal pattern. Now eliminate the “low” price years.

Pre-Harvest Pricing The 23 year seasonal price history is compelling, but it is not the most important reason why pre-harvest sales are important #1: I know my costs, and sales are made at prices that work for me! #2: Strong seasonal tendency I don’t think we can over-emphasize the idea that the value of a pre-harvest marketing plan goes beyond the seasonal price tendencies. I like to say that even if the seasonal tendency did not exist (i.e. the odds of going lower into fall were 50-50), I still have a strong interest in pre-harvest sales.

The Chicago Butter & Egg Board
Quiz Time! What was the original name of the Chicago Mercantile Exchange? The Chicago Butter & Egg Board

Quiz Time! Name two commodities that once traded at the Chicago Butter & Egg Board.

Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. (3) Pricing tools & trump cards

Pricing Tools I understand the opportunity in pre-harvest pricing, but which pricing tool should I use? Fixed-price tools Forward contract Sell futures Futures fixed (HTA) Minimum-price tools Forward contract and buy a call option Buy a put option Minimum price tool offered by local elevator The purpose of the pricing tools section is to go over the mechanics of how each works and how to calculate a local price received.

Pricing Tools Fixed-price tools Minimum-price tools
Final price is known (or nearly known) No “upside” potential if prices go higher Minimum-price tools Upside potential High cost makes it difficult to use in early sales (which are likely lower price sales)

Pricing Tools Because minimum price tools (primarily options) retain your upside potential, we view them as a “trump card” in pricing.

Fixed-Price Tools Forward contract
Exact price is known (basis is fixed) Contract can be for any bushel amount, not just 5,000 bushel increments No brokerage fee, margin accounts or margin calls Ends in delivery Institutional risk Sometimes difficult to get a “fair” basis Because a forward contract ends in delivery, there are no marketing opportunities after harvest. This is a big issue for those producers who have on-farm storage, and like to pursue on farm strategies.

Sell futures (hedging)
Fixed-Price Tools Sell futures (hedging) Average price is usually higher compared to forward contracting Not locked into delivery, can be rolled into a storage hedge to capture market carry after harvest Contract in units of 5,000 bushels Requires margin account and must provide margin money as market fluctuates (margin calls) Must buy futures to exit the position Basis risk

Sell futures – What is my expected price?
Fixed-Price Tools Sell futures – What is my expected price? futures price (when sold) + expected harvest basis – brokerage fees = expected price $ (-0.75) $13.24 Example selling soybean futures. 2013 soybean example

Sell futures – What is my expected price?
Fixed-Price Tools Sell futures – What is my expected price? futures price (when sold) + expected harvest basis – brokerage fees = expected price $ (-0.10) $6.49 Example selling soybean futures. 2013 corn example

Hedge-to-Arrive contract
Fixed-Price Tools Hedge-to-Arrive contract Like selling futures, except you work with local elevator Contract can usually be for any bushel amount, not just 5,000 bushel increments No brokerage fee, margin accounts or margin calls Most elevators let you lock-in the basis sometime during the contract May be rolled into storage hedge (terms differ) Pay a fee (1-5 cents per bushel) Institutional risk Basis risk Locked into local elevator delivery

Forward contract and buy a call option
Minimum-Price Tools Forward contract and buy a call option Soybean example: forward contract price at $13.25, Nov’13 futures trading at $14.00, a 1400 call (i.e. the right to buy at $14.00) has a 122 cent premium What is the minimum price? forward contract price – call premium – brokerage fee = minimum price $ $12.02

Quiz Time! To use options profitably, which of the following three aspects of price movement must you forecast correctly? Price direction The magnitude of the price move The timing of the price move All of the above

Quiz Time! To use options profitably, which of the following three aspects of price movement must you forecast correctly? Price direction The magnitude of the price move The timing of the price move All of the above √

Minimum-Price Tools Buy a put option
Corn example: Dec’13 futures trading at $6.60, a 660 put (i.e. the right to sell at $6.60) has a 67 cent premium What is the minimum price? put strike price + expected basis - put premium - brokerage fee = minimum price Clearly the cost of options creates a huge disincentive to use them as a trump card for lower price sales. $ (-0.10) $5.82

Minimum-Price Tools So what is the difference between buying a put option vs. forward contracting and buying a call option? Both set a minimum price Do you want to fix the basis? You have to calculate which method offers the best minimum price at any given time See your tax advisor about call option losses Forward contracting and buying a call will fix the basis in the transaction. This can be good if you like the strong basis implied by the forward contract. Buying a put would make more sense if the new crop basis is wide, and you think the odds are good for a better basis by harvest.

A disciplined but flexible way to change your plan!
Trump Cards The #1 reason people avoid marketing plans… “As soon as I sell, the price will go up!” Use a “trump card” – some form of a trend following tool - to follow a price rally up then sell when trend turns back down A disciplined but flexible way to change your plan!

Trump Cards Options Technical trading tools
Consider a simple moving average as a proxy for your favorite technical tool Track two moving averages (e.g., 7 and 10 day) “Crossover” signals buy or sell See appendix for more information You may choose to use options or other technical trading tools as trump cards, but a simple one to adopt is the moving average.

Trump Cards This is the year everyone is expecting and makes most people reluctant to sell grain in March-to-May time period. A trump card gives you a disciplined loophole in your plan in case this year ever comes along again.

Trump Cards Technical tools, including moving averages, are not perfect (they don’t always work)! Pros: Objective; reliable in strong trending markets Cons: Ineffective in sideways markets; susceptible to sharp downdrafts To quote a well-known analyst, “Technical tools work very, very well - except when they don’t”.

Trump Cards Save trump cards (options and/or technical tools) for the later stages of the plan Lowers the cost (i.e. the time value) of options Spring and summer months are more likely periods for trends

Before we play the game, you need to make your plan!
Objective: Buy crop insurance to protect my production risk and have ___% of my anticipated corn crop (based on APH yield) priced by late May. Price ______ bushels at $______ cash price ($_______ Dec. futures) using ___________. Price ______ bushels at $______c/______f, or by ____________, using _____________. Price ______ bushels at $______c/______f, or by ____________, using _____________. Plan starts on __________________. Earlier sales will be made at a _________ cent premium to price targets noted above. Ignore decision dates and make no sale if prices are lower than $_________ local cash price/$_________ December futures.

Pre-Harvest Corn Marketing Plan
What would you change? Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013.

50% is plenty! Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013.

$5.00 and a lower minimum! I want different price objectives! Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013.

Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by mid June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/futures fixed contract. Price 10,000 bushels at $5.80c/5.90, or by Mar 27, using a fixed-price contract. Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, using a fixed-price contract. Price 15,000 bushels at $6.60c/6.70f, or by May 9, consider options/trend system. Price 10,000 bushels at $7.00c/7.10, or by May 23, consider options/trend system. Price 10,000 bushels at $7.40c/7.50f, or by June 6, consider options/trend system. Plan starts on January 1, Earlier sales will be made at a 50 cent premium to price targets noted above and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. I want different dates!

The Game Rules for Corn Production is 84,000 bushels
Starts first of January Ends first of October All open positions liquidated on that day Any unsold bushels will be priced at harvest, no post-harvest sales Refer them to the front of the scorecard.

Now get ready for the game by writing your own marketing plan!
Think of your own operation, but for corn use 90,000 bushels for total expected production. For wheat use 25,000 bushels.

Before we play the game, you need to make your corn plan!
Objective: Buy crop insurance to protect my production risk and have ___% of my anticipated corn crop (based on APH yield) priced by late May. Price ______ bushels at $______ cash price ($_______ Dec. futures) using ___________. Price ______ bushels at $______c/______f, or by ____________, using _____________. Price ______ bushels at $______c/______f, or by ____________, using _____________. Plan starts on __________________. Earlier sales will be made at a _________ cent premium to price targets noted above. Ignore decision dates and make no sale if prices are lower than $_________ local cash price/$_________ December futures.

Game Wrap-Up How did you do? How did your neighbor do?
Is this a better way to market your grain? Let’s get specific with 2013 pre-harvest pricing actions to-date

Corn 2013 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by June. Price 10,000 bushels at $5.40 cash price ($5.50 Dec. futures) using forward contract/futures hedge/HTA contract Price 10,000 bushels at $5.80c/5.90f, or by Mar 27, pricing tool tbd Price 10,000 bushels at $6.20c/6.30f, or by Apr 25, pricing tool tbd Price 5,000 bushels at $6.60c/6.70f, or by May 9, pricing tool tbd Price 10,000 bushels at $7.00c/7.10f, or by May 23, pricing tool tbd Price 10,000 bushels at $7.40c/7.50f, or by June 6, pricing tool tbd Price 10,000 bushels at $7.80c/7.90f, or by June 20, pricing tool tbd Plan starts on January 1, Earlier sales will be made at a 50 cent premium and will be limited to 30,000 bushels. Ignore decision dates and make no sale if prices are lower than $5.40 local cash price/$5.50 December futures. Exit all options positions by mid-September 2013. DRAFT

Soybeans 2013 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk and have 75% of my anticipated corn crop (based on APH yield) priced by June. Price 2,500 bushels at $11.10 cash price ($11.90 Nov. futures) using some form of fixed price contract: forward contract, HTA, sell futures Price 2,500 bushels at $11.80c/12.60f, or March 27, pricing tool tbd Price 2,500 bushels at $12.50c/13.30f, or by April 25, pricing tool tbd Price 2,500 bushels at $13.20c/14.00f, or by May 9, pricing tool tbd Price 2,500 bushels at $13.90c/14.70f, or by May 23, pricing tool tbd Price 2,500 bushels at $14.60c/15.40f, or by June 6, pricing tool tbd Price 2,500 bushels at $15.30c/16.10f, or by June 20, pricing tool tbd Plan starts on January 1, Earlier sales will be made at a 75 cent premium to price targets noted above and be limited to 10,000 bushels. Ignore decision dates and make no sale if prices are lower than $ local cash price/$11.90 November futures. Exit all options positions by mid-September 2013. DRAFT My original plan was written in mid-July, with minimum price objectives 80 cents lower.

Proactive Marketing Recall:
A marketing plan is a proactive strategy to price your grain. This approach has pros and cons. Con? In a bull market, sales are often too early and too cheap Pro? Early sales are good in a sideways or bear market People might be regretting a few too many “too early and too cheap” sales in the past year. Remind the audience that the market has three directions to move: up, down and sideways. The proactive approach serves them well in two of the three. Help them see the big picture!

Final Thoughts Baseline Prices
Pre-Harvest Marketing Plan Effectiveness Study, What have we learned?

How do you know if you’re a star? Tracking Baseline Prices
A “baseline price” is a benchmark for comparison Homework: Track the average price over the marketing life of a crop Get to know your local market!

Baseline Prices (2012 crop year)
Southern MN example! Record a possible selling price on the same day each month (e.g. 2nd Friday) How will my average price compare to this?

Baseline Prices (2012 crop year)
Southern MN example! Record a possible selling price on the same day each month (e.g. 2nd Friday)

Pre-Harvest Marketing Plan Effectiveness Study, 1990-2012
How does the marketing plan presented here compare to other approaches? What gives you the best average price over several years? Compare four different marketing plans using actual prices from The cautious participant will be thinking / saying, “In that game we played, you stacked the deck by picking a year that makes you look good.” So, let’s compare different marketing plans over the time period.

Barney Binless has no interest in pre-harvest marketing. He represents the benchmark harvest price, set on the Friday between October of each year. Lets introduce a few celebrity players. Visit a number of celebrity producers at…

Darla Discipline follows (strictly!) a basic pre-harvest marketing plan, similar to the one explored today. Visit a number of celebrity producers at…

Terry Timer makes sales in March, April and May, but not when prices are below her minimum. Visit a number of celebrity producers at…

Peter Paperfarmer makes sales in March, April and May but “re-owns” with call options. He exits options positions in mid-September. Visit a number of celebrity producers at…

Let’s compare to Barney Binless!
Results for Corn, Let’s compare to Barney Binless! Barney Darla Terry Peter Average $2.68 $2.67 $2.79 $2.74 Worst Price * 12 1 4 6 > / = to Barney * na 16 17 15 Southern MN prices! Barney is on a roll – having the best price 3 years in a row! Darla’s average price was the same, even as she did better than Barney 16 out of 23 years. Terry averaged 11 cents better. Peter with his option strategy is doing well, thanks to a home run in 2012 – note he did worse than Barney in 15 years (Peter profited from options in 4 of the remaining 8 year – the other 4 prices were below minimum). * Out of 23 years

Let’s compare to Barney Binless!
Results for Soybeans, Let’s compare to Barney Binless! Barney Darla Terry Peter Average $6.70 $6.56 $6.76 Worst Price * 9 2 3 8 > / = to Barney * na 14 15 11 Southern MN prices! 2012 has been a boom year for Barney – the harvest price is $3-4 better than all others - raising his average to best ever levels relative to other players. * Out of 23 years

Why is an imperfect plan better than no plan at all?
A plan is a benchmark for goals – it gives you something to adapt in a changing environment A marketing plan is a plan to make money - no plan at all includes the option of losing money

Launch Your Marketing Plan What have we learned?
A plan is discipline - plan your trades, then trade your plan A plan is proactive, not reactive, and not overactive Pre-harvest marketing is very important – history supports it and does the price work for you?

Launch Your Marketing Plan What have we learned?
Crop insurance is confidence Set pricing targets and decision dates, track your baseline price The use of options and technical trading tools (trump cards) offer flexibility with discipline. Use selectively!

Now available! Companion book to the “Winning the Game” series of workshops Written for grain producers Four parts cover (1) common mistakes in marketing, (2) pre-harvest marketing, (3) post-harvest marketing and (4) pulling it together

Evaluation (back of the book)

Thanks to our local sponsors!
Add the local sponsor information here. This should be customized for each location. Also, make a copy of this slide and put it at the end of the presentation.

Launch Your Pre-Harvest Marketing Plan

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