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FARMERS' CORNER | |||
| "To Help The Producer Sell Better" | September 1996 1996 Number 8 |
|
FARMERS' CORNER | |||
| "To Help The Producer Sell Better" | September 1996 1996 Number 8 |
"Success - keeping your mind awake and your desire asleep."
----Moses Ibn Ezra
One of Aesop's fables tells the story of a fisherman who made his living by what he caught in his net. After one long day fishing, all he caught was one small fish. The fish begged for its life, saying, "Look how small I am; what good could I possibly be? Throw me back, and I will grow much larger. Then I will be worth much more to you." The fisherman replied, "You must think I am very foolish indeed, if you believe that for the uncertain chance of something better later on, I would throw away the certain dinner that I have now."
The fisherman understood a powerful principle of success; what he already had met his needs, and there was no way he was going to reject it in the hopes that something bigger and better might come along later.
Here's a modern version of that story. click here to continue the story
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The local elevator was buying new crop corn at $3.00, and two farmers were on their way to forward contract their new crop corn at this great price. Their names were Top-Third and The Rest. Along the way, they picked up a market advisor who was hitchhiking to town. The market advisor asked, "Where are you fellows going?" When he found out that the two farmers were going to sell their corn, he was shocked. "Don't you guys know that corn is going to go through the roof pretty soon? Why, my technical analysis, my chart studies, my psychic friend, and my crystal ball tell me that new crop corn could hit $5.00 this year!"
The Rest thought that this was great news. He was still upset that he hadn't sold when corn was at $3.25, and he wanted to get at least that much. He decided then and there that he was going to hold on to his corn until the price went up a little.
Top-Third said, "Well, I've found that the only sure thing is what's happening right now; right now, I can sell corn for $3.00. At that price, I can pay for my cost of production and make a great profit too! Plus, I will get my money at harvest, and I won't have to pay any storage fees. Sure, if I wait prices might go up, but I don't know that for sure. It's not worth the chance of losing the great opportunity that I have right now."
Top-Third and Aesop's fisherman had a lot in common. The idea may have been tempting, but they knew that it just wasn't good sense to throw away today's guarantee for the uncertain promises of bigger and better things tomorrow. click here to continue the story
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The farmers' decision should have been a little easier than the fisherman's. The fisherman had just one small fish; he had to decide whether to throw it away and wait for it to grow, or to feed his family on it. The farmers, on the other hand, had $3.00 corn (a really, really, big fish)! All they had to decide was whether to accept something that was already more than they had seen in several years, or to wait and hope for an even bigger gift.
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Let's suppose that as Top-Third continued toward the elevator he couldn't get the market advisor's predictions off his mind. He knew that $3.00 was a great price, but he just couldn't bear the thought of missing out if the price went higher.
In this case, the local elevator had just what Top-Third was looking for. For a few dollars more per acre, a Minimum Price Contract allowed him to lock in the $3.00 and have the chance to receive more if the price went up!
At prices this high, the best thing to do is just sell 100% of your anticipated production now. However, if you need the flexibility of a Minimum Price Contract, come in or give us a call to talk about the alternative that is right for you. We even offer a 50/50 Minimum Price Contract that allows you to lock in a profitable price on 100% of your expected production and have upside potential on half of it! If you are concerned about non-production, talk to us about how Minimum Price Contracts can also enable you to lock in a profit now and receive total forgiveness if you don't make the crop.
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Just like the fisherman in Aesop's story and the two farmers in the modern version, you have a choice to make. You are the only one that can decide what is right for you. Farmers today have access to more information than ever before; it seems that every day, there is a new source of information, and a new opinion on where prices are going and where you should sell. There are as many different opinions as there are people.
What it comes down to is a matter of control. Who is in control of your marketing? If you have a plan and stick with it, then you are. If you lock in a profitable price when one becomes available, then you are. If you do not allow yourself to be swayed by popular opinion, price speculation, and the advice of every market advisor who comes down the pike, then you are.
It is when you leave yourself at the mercy of the market that you lose control. Those who do not have a plan or a commitment to selling at a profit are like a ship without an anchor; they are swept along with the current, and they have no control over their final destination. Marketing turns into an emotional roller coaster ride.
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This chart is designed to help you compare some of the alternatives that are available to you right now for selling your crops. Take a look at the information here; it may help you in your decision-making process. Feel free to make additions to any of the "Pro" or "Con" categories.
1996 Corn and Soybean Marketing Alternatives
| Alternative | Pros | Cons |
| Sell '96 harvest now | - lock in a profit - get money at harvest - avoid extra charges after harvest (storage, interest, etc.) - you are in control |
- risk of non-delivery |
| Sell '96 harvest now and use a Minimum Price Contract |
- lock in a profit with upside potential on 100% of your production - minimize risk of non-delivery. - get money at harvest - avoid extra charges after harvest (storage, interest, etc.) - you are in control |
- cost involved |
| Sell '96 harvest now and use a 50/50 Minimum Price Contract |
- lock in a profit on 100% of your production, with upside price potential on 50% - minimize risk of non-delivery - get money at harvest - avoid extra charges after harvest (storage, interest, etc.) - you are in control |
- cost involved (half as much as regular M/P contract) - risk of non-delivery on 50% |
| Sell '96 harvest now for deferred delivery (Jan/Feb/ Mch, etc.) and use on-farm storage at harvest. |
- get a premium for later delivery - convenience of on-farm dumping at harvest - you are in control (M/P can be included to add upside price potential or minimize risk of non-delivery) |
- incur some storage costs (shrink, insurance, interest) - risk of non-delivery |
| Wait for higher prices; sell at harvest |
- get money at harvest - avoid extra charges after harvest (storage, interest, etc.) - no risk of non-production |
- don't lock in a profitable price ahead of time - have to take what the market is offering at harvest - you are not in control |
| Wait for higher prices; put grain in storage at harvest |
-no risk of non-production | - don't lock in a price floor; left at the mercy of the market - don't get money at harvest - pay storage fees, interest, etc. - you are not in control |
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This is a fair question that deserves an honest answer. If we could tell what the high was ahead of time, then everyone could sell there. The problem is, it is impossible to identify the high until it is gone. When prices have started to go back down, then the high will be easy to see; unfortunately, by then it will be too late.
Waiting for the high leads to a breakdown in discipline and focus. As we watch the market, good selling opportunities slip away. If prices go up, the instinct is to wait and see if they go up a little more. If prices begin to go down, the instinct is to wait for them to get back to where they were. In the meantime, the original focus (selling production at a profit) has been lost completely.
We don't know where prices are going, but we do know that right now, new crop corn and soybeans are at very profitable levels.
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 The Coffee Shop Here are a few points of view on how folks should manage their future; maybe you've heard of these guys . . . * "The greatest mistake you can make in life is to be continually fearing you will make one." -- Elbert Hubbard * "I can give you a six-word formula for success; 'Think things through - then follow through.'"-- Edward Rickenbacker * "He that waits upon Fortune, is never sure of a dinner." -- Benjamin Franklin |