Brick by brick:
By Darcy Dougherty Maulsby
CARROLL – There’s just too much. Grain, that is. It’s a common refrain that grain marketers like Steve Knuth keep repeating as they analyze the global over-capacity challenge and strategies for success in today’s markets.
“There are excess soybeans globally and record levels of soybean ending stocks,” said Knuth, AgWest Commodities founder and Chief executive officer, who spoke during a “Planning for Profitability” meeting with the Iowa Soybean Association in Carroll on July 14. “Corn ending stocks are also the largest in nearly 30 years.”
How did the markets get into this predicament? Acreage and technology.
“As hybrids have advanced rapidly since 2000, this has pushed yields higher,” Knuth said. “Also since 2000, the global acreage of corn has gone up 32 percent, with global corn yields per acre rising 30 percent.”
These are big reasons why 2017 marks the third year of corn trading in the $3 to $4.50 range, Knuth said. It’s a similar story with soybeans during this time period, with global acreage soaring 69 percent and global yields per acre rising 24 percent.
It appears there will be two big market drivers in 2017, including the weather’s impact on production and outside money flow. “These folks can really move a market around,” Knuth said. “You have to thank the funds for 2016. They provided some tremendous opportunities in 2016, but you have to be ready for these rallies.”
“It’s like building a wall a brick at a time”
Current market conditions make it clear that corn is in a sideways market and soybeans are in a downward market. In times like this, what’s the single most important thing related to production marketing? “The ability to make a decision,” Knuth said.
Having a plan can make these decisions easier. Think of developing a grain marketing plan like building a wall. “It happens one brick at a time,” Knuth said. “Marketing is about doing the next right thing, one brick at a time. Without a plan, how do you know what the next right thing is?”
Knuth offered these top 10 marketing rules for success:
1. Focus on consistent profitability. No one knows where the markets are headed, so don’t get carried away trying to hit the top of the market. “Consistent profitability is the primary goal,” Knuth said.
2. Develop an accurate cost of production based on APH yields. “You’ve got to know your numbers,” Knuth said. Also, don’t wait until the last minute to develop a grain-marketing strategy. “Planning needs to start early,” he added.
3. Big-picture analysis lays the foundation of a marketing plan. While it’s smart to keep an eye on the big picture, from global weather conditions to USDA reports, it’s easy to become overwhelmed. “The toughest thing about grain marketing is the unknown,” said Dwight Dial, a Lake City-area farmer who attended the Planning for Profitability meeting. “You read and hear all this information about the markets and don’t know what to do.” Work with a grain marketing advisor you trust, Knuth said. “We believe in keeping things simple. You don’t want paralysis by analysis.”
4. Determine potential price risk for each marketing period. “Once you look at these factors, have plans in place if the market goes higher or lower,” Knuth said.
5. Establish realistic financial goals. Marketing plan success should be gauged against your individual goals rather than Chicago price action. Once these goals are set, develop a marketing plan to help achieve them. “Without a plan in place ahead of time, you can’t react quickly enough when the market gives you opportunities,” Knuth said. Dial knows this first-hand. If he hadn’t had a marketing plan in place ahead of time, there’s no way he could have captured a recent rally that lasted only 15 seconds. “Creating a marketing plan and sticking with it offers peace of mind,” he said.
6. Know that discipline is necessary for successful marketing. A willingness to not only make a plan, but execute the plan, is key, Knuth said. “Without adding some serious discipline to the process, you make emotionally driven decisions, which are often poor decisions.” Leaving grain in the bin and being forced to sell because time ran out is usually a poor decision. “When you have a plan in place and the discipline to follow that plan, you avoid the last-minute Hail Mary and help remove the guesswork from grain marketing,” Knuth said.
7. Futures and basis prices should seldom be set at the same time.
8. Maintain ownership and flexibility to choose a buyer until it’s time to set the basis. Hedging with futures makes this possible, Knuth said.
9. Have a back-up strategy. Every good marketing plan includes contingency plans in case of a major market-changing event.
10. Realize that perfection in marketing is unachievable. This paradigm shift is often difficult for people to grasp at first, Knuth said. “Get perfection out of your mind. Make marketing a process, not an event.”
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page