Morning Highlights
Morning Highlights

Plan to manage risk in 2022

John Ondrey

Jan 7, 2022

Three men stand beside a truck on a farm, talking.

Listen to the full audio by Kent Beadle

Growers are currently planning input purchases for the 2022 growing season and considering how to market their grain in the year ahead. For some, building this marketing strategy can be a stressful process. Here are some key points to keep in mind to help take the stress out of grain marketing decisions.

1. Know your costs.

“Input costs are an important component in any grain marketing plan,” says Kent Beadle, director of producer brokerage with CHS Hedging. “Once you know what those costs are going to be, you can develop a plan of what your income needs to look like to generate appropriate return on assets and equity for your operation.”

2. Know your gross revenue per acre.

Higher yields tend to generate a somewhat lower prices, while lower yields can generate higher prices. As a result, Beadle suggests focusing on gross dollars per acre farmers can generate from their operations, then executing a marketing plan to try to achieve that revenue.

3. Look at the big picture.

Global output and carryout expectations will have an impact on the revenue farmers can project, says Beadle. “We’re looking at December corn at approximately $5.50 a bushel and November beans at approximately $12.50 a bushel,” he notes. “That is a good starting point, but we also know there is some seasonality involved. We’re typically going to have some opportunities—whether they’re acreage-driven or weather-driven—between now and approximately late May to early July. That’s when you get some weather volatility you can take advantage of.

“We also have to understand that by next year’s harvest, it’s probably going to be cheaper than under most yield circumstances,” he continues. “That’s how you start scaling in marketing opportunities and try to build an overall average price to achieve those gross dollar objectives.”

4. Be aware of potential gaps in your plan.

The very nature of risk management says there can be gaps in how a marketing plan flows. A couple of factors can play into these gaps, says Beadle.

”As we start thinking about the cost of seed, chemicals, fertilizer, rent and land, farmers need to ensure they’re taking living expenses into consideration. Some operators have external income they use to take care of that, but sometimes it’s a gap.

“Lack of profit in the equation is often the other gap we see. Of course, farmers want to make a return every year. You hear a lot about ‘break-even analysis,’ but nobody farms to break even. They farm to make a return on the assets and equity they have in the operation. Those are the two gaps farmers need to pay attention to.”

5. Ask for help.

Some farmers may hesitate to put their marketing plans into action because of doubts about their decisions or a desire to have more information about marketing and risk management. For those growers, getting additional input is something to consider.

“Grain marketing is difficult; it’s an emotional process, because farmers are very tied to the production they labored over and spent an awful lot of equity and knowledge trying to produce,” says Beadle. “As a result, it’s not easy to make these decisions. If you’re a farmer who doesn’t make decisions easily or you think in hindsight that you may be overlooking something, then—as in other areas of your operation —find someone who can help you. Find a trusted advisor, hire that person and then work together to execute a marketing plan.”

This material has been prepared by a sales or trading employee of CHS Hedging, LLC, and should be considered a solicitation. There is a risk of loss when trading commodity futures and options.