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Developing a Grain Marketing Strategy
from Saskatchewan Agriculture, Food and Rural Revitalization
Why do you need a marketing strategy?
Over the years there has been a tendency for grain producers
to concentrate on producing a good crop, and spend much less
effort on marketing it. However, in these times of low commodity
prices and slim profit margins, growing a good crop is no longer
enough to guarantee a profit.
Developing and implementing a sound marketing strategy is one
of the first steps toward establishing a profitable marketing
program. A marketing strategy will help you make reasoned marketing
decisions, rather that have out-dated information or impulsiveness
influence you decisions. A marketing strategy will not guarantee
that you will always sell a commodity at the top price, but
it will help you to manage price risk and improve your market
Make choices, set goals, and get involved
Grain and oilseed producers have many marketing choices available
to them. These choices include what to grow, and how and where
to sell the production.
Wheat and barley can be sold through the Canadian Wheat Board
on general quota, or on guaranteed delivery contracts. Feed
wheat and barley can be sold for export through the Wheat Board,
or as non-Board feed grain to elevator companies, fed to livestock,
or sold to feedlots and feed mills.
Oats, rye, canola, flax, and special crops are sold on the open
market. A wide array of pricing and delivery alternatives are
available for these crops, including cash sales through the
elevator, deferred delivery and production contracts through
a grain company, futures contracts, futures options, delivery
against a futures contract to terminal position, and self-loaded
Producers need to evaluate all grain marketing alternatives,
existing market trends, and market signals in order to make
sound marketing decisions. The planning process requires commitment.
A successful marketing strategy requires that you be committed
to a unique marketing plan, suited to your individual farm needs.
Active involvement in all aspects of marketing from gathering
market information, to analysis of market trends, to preparing
a plan and putting the plan into action, is crucial to your
success. You should also be willing to try new techniques, and
learn from mistakes.
A sound marketing plan should have five goals:
A comprehensive marketing strategy requires some knowledge of
how the futures market operates. Inexperienced producers should
be aware of the risks involved in futures trading, and enrol
in a training program. Contact your local Extension Agrologist
for information on futures market training programs in your
- Choosing crops that have the greatest income potential.
Pricing and marketing all non-board grains according to
a predetermined plan, rather than by ad hoc decision-making.
- At prices above production costs, and above the yearly
- Pricing according to prevailing market trends.
- Reducing risk of price erosion from falling market prices
through forward pricing strategies.
- Reducing marketing costs by closely monitoring the basis
and timing grain sales when basis levels are low. (For more
information refer to SDAF FarmFact publications, "Understanding
the Basis", And "How to Use the Basis".)
- Reducing storage and interest costs by early marketing.
Sticking with a pre-set marketing plan in a disciplined way
is a critical part of a successful marketing strategy. Discipline
is required to avoid unnecessary price risk.
By staying in constant touch with the market you will ensure
that you have the information needed to take advantage of price
rallies. But the marketing plan should also be reviewed and
revised on a regular basis as supply and demand conditions change.
How to get started
Based on experience and variety recommendations, examine the
crops that could be considered in your production plan. Consider
all the important agronomic factors including crop rotations,
herbicides, equipment requirements, and management needs for
Estimate the cost of production for each crop. This can be used
to determine the break-even price for the commodity. Break-
even prices can be compared to current market prices, and the
projected market outlook, to help determine the most profitable
crop. Pricing strategies should be geared to selling at prices
above the break-even level. Determining your cost of production
is also useful to ensure that your Crop Insurance coverage is
adequate to cover your operating costs.
Production costs can be gleaned from the previous year's income
and expense statements. A cost of production worksheet is provided
on Table 1 (For detailed comparison and calculation of individual
farm production costs, refer to the SDAF publication, "Crop
Planning Guide", for each soil zone.) The break-even price
for the commodity can be calculated by dividing total cost by
Good marketing decisions require good marketing information.
Good marketing information is obtained from several reliable
sources including the elevator company, commodity broker, market
analysis newsletter or weekly farm paper. As well, the general
market and financial news sections of daily and weekly newspapers
can provide you with a well rounded, balanced market opinion.
Good market information should highlight the market outlook,
and contain some analysis of supply and demand conditions. Evaluation
of vital national and international political developments affecting
the grain market is also valuable.
Analysis of daily and weekly price charts, called "technical
trend analysis". Is an important part of overall market
analysis. Following the charts to plot "trend lines"
is helpful to indicate the short-term direction of the market.
Trend analysis is valuable for timing of hedges and other pricing
Market information is useful only to extent that it helps you
make an informed decision about what might happen to the markets
in the future. It is important to focus on all factors that
may affect market prices in the year ahead, rather than base
decisions on conditions which occurred in the previous year.
You will be ready to make crop choices after completing an agronomic
review of crop rotations, the cost of production, break-even
calculations, and the market outlook. Final crop selection should
weigh all the production and marketing factors and be based
on which crops pay the highest net return.
Implementing the strategic plan
The key to the success of the strategic plan is using a 12 to
18 month planning horizon. The plan includes different strategies
for pre-seeding, pre-harvest, and the post-harvest period, while
striving to achieve the five goals set out in Section I.
Establishing Price Goals or Target Prices
After you calculate break-even prices, and analyze the market
outlook, you are ready to set your own target price. The target
price will be the triggering mechanism for selling non-board
grain within the strategic marketing plan.
Since it is impossible to pick the top price every time, you
should set targets at an attainable level which will still yield
a satisfactory profit. The goal should be to sell at prices
which are above the average price of the year, preferably in
the top one-third of the annual price range. For example, if
the price range for canola in the coming year is predicted to
be between $5.00 and $6.25 per bushel, a realistic target price
might be $6.10 per bushel.
Since the target price triggers a pricing or selling signal,
discipline is required to ensure that the plan is carried
out and sales are made when the market price hits the target
price. This is necessary so that you are not tempted to hold
on for a higher price after the market has reached the target
level. Discipline is required to avoid unnecessary price risk,
resulting from price speculation in a rising market, or panic
selling near the bottom of a falling market.
Forward Selling Strategies
Forward selling ro forward pricing is a key element of a marketing
strategy. It provides an opportunity to capture strong prices
during a market rally, before the crop is seeded or harvested.
Forward pricing is triggered when market prices move up to
the target or trigger price (see Figure 1).
Forward pricing can be done by using a deferred delivery contract,
hedging on the futures market, purchasing a futures option
or Price Protection Agreement (minimum price contract) through
a grain company.
It may be profitable to forward sell only a portion of your
expected production. Typical amounts you would forward sell
would be 25 to 50 per cent of an average crop, when you place
a pre-seeding "short" hedge (or deferred delivery
contract) and an additional 25 to 49 per cent in mid-summer.
It is unwise and most likely not profitable to forward sell
100 per cent of expected production in case reduces crop yield.
The risk of prices moving higher after you have forward sold
can be reduced by taking out a call option. (For more information
on Futures Options refer to SDAF publication, "Understanding
Futures Options" or contact the Winnipeg Commodity Exchange.)
After Harvest Strategies
Price protection strategies after harvest are important because
the value of stored grain can erode. Storing unpriced grain
is a form of speculation; speculation that the price will
go up. Holding unpriced grain in a declining market is a significant
risk, if the price does not go up.
Grain prices tend to drop at harvest time because of the large
volume coming on to the international market (low futures
price) and ample supplies in the local market (wide basis).
Close adherence to the marketing strategy will reduce the
risk of selling in a depressed market. There is less pressure
to deliver at harvest if you utilize forward selling strategies
such as a pre-harvest hedge or deferred delivery contract.
Wide basis levels are a signal that the marketing system is
congested, as is generally the case right after harvest. Once
deliveries subside, buyers become more competitive. Waiting
for a narrower basis reduces marketing costs and increases
Storing unpriced grain can be a worthwhile strategy when market
prices are expected to improve and/or if the basis levels
are wide. However, the anticipated improvement in market prices
should be as large as the cost of storing the grain. (For
a more detailed explanation of carrying costs, refer to SDAF
publication, "Does It Pay To Store Grain?")
Under conditions when it is unsafe or expensive to store grain
and when the basis is narrow, it is wise to deliver the grain
as soon as possible. However, if there are indications that
market prices may improve later on, the purchase of a "long
futures contract" will capture the benefit of any impeding
rise in the market. This strategy is referred to as "business
speculation". When a producer exchanges a cash grain
position for a "paper grain" position. A business
speculation strategy provides cash from the delivery and sale
of grain, while retaining the ability to capture rising prices,
should prices move up after the grain is sold.
Futures options contracts can also be used to reduce the risk
of prices going up after the grain has been delivered. A "Call
Option" give the producer the right to by a "long"
futures contract, with less risk than a long futures position.
A well-planned marketing strategy is not designed to achieve
the top price on each sale of grain. It is intended to improve
over-all market returns through a planned approach to selling.
The success of the strategy will be determined by your year-end
Successful marketing strategies don't happen without a good
deal of effort and discipline. The discipline involved will
help remove greed, speculation and panic from the pricing
decision. By pricing grain according to pre-set marketing
strategy and by taking advantage of market tendencies and
low basis levels, the producers will attain the goal of higher
Enrolling in a marketing training course is a good way to
begin a strategic plan. Contact your Extension Agrologist
for information on courses in your area.