Grain Marketing in 2020: How to Profit in Chaos
Grain marketing involves its fair share of risk, but the volatility in 2020 has been particularly unnerving for U.S. farmers:
- When most of the U.S. shut down after March 16, crop and livestock futures took a nosedive.
- Despite early concerns that the pandemic would prevent China from meeting Phase 1 of the trade deal, since July, China has been making record purchases of corn and soybeans.
- Mother Nature threw a curveball at USDA predictions for August bringing dry, hot conditions and a destructive derecho to Iowa, Illinois and Indiana.
To sort it all out, Granular hosted its final COVID roundtable to ask two marketing experts, Tommy Grisafi, president and CEO of Indiana Grain Company, and Angie Setzer, Vice President of Grain for Citizens LLC, for their take on how to tackle marketing in 2020 harvest and beyond.
What’s Impacting the Markets Right Now?
According to Tommy Grisafi, COVID-19 kicked off the volatility and it hasn’t stopped. The stock market has been on a tear, with tech stocks at record highs. International demand for corn and soybeans is high, interest rates are at historic lows, and we’re starting to see inflation creep in.
“Last week the S&P 500 and the NASDAQ hit record highs. Just the other day, Zoom went up $150 a share. I’m not here to talk about stocks, but if corn, beans, wheat and cattle were up 25-30 percent today, I think y’all would be pretty excited. So we have that type of market volatility in the stocks. Interest rates went down for the whole world — some people even have negative interest rates. Just to give you a little tidbit, in the last 120 days, the price of lumber has quadrupled. That’s inflation and it’s coming. And as a producer, you’re going to need to stay ahead of that,” said Tommy.
Angie Setzer raised concerns that the unexpected weather in August may negatively impact early yield estimates from the USDA. Given exceptional export demand right now, some are concerned that the U.S. supply isn’t as secure as anticipated this year. She added, “We’re definitely watching the combines start rolling and what that’s going to bring into the pipeline, and if we can meet the demand expectations we have.”
Unexpected Market Realities
Both panelists were asked to offer insight on unique market realities that may or may not be so obvious from the field. While Angie acknowledged that most U.S. operations are keenly aware of the challenges to making a profit, she challenged the assumption that American is still the breadbasket of the world. U.S. cost of production, which is already higher than other countries, will go up with inflation, squeezing profits even more.
“A huge marketing misconception is that America remains the breadbasket of the U.S., but that’s no longer the case. Everyone else is working hard to be competitive with us. We are going to have to fight to keep that market share. With the inflation our cost of production is so much higher than in other countries, making it harder for the American farmer to produce a profit,” said Angie.
Tommy questioned whether the U.S. government is more concerned about food security and keeping farmers from going broke than their making a profit. “When times get bad, they come in and send you money,” he added. “I think people get confused with the ability to make a profit and the ability to produce a bushel.”
His advice: focus on yield. “If you’re not happy with the price you’re going to get, you better get every bushel you can.”
Top 3 Tips to Improve Your Grain Marketing
In the end, we know farmers just want to know how to market better. We asked our panelists for their advice, and surprisingly they agreed. Successful marketing now and always comes down to three key things:
- Lose the seller’s remorse and be decisive. Both panelists agree that individuals who have the hardest time making a decision have the hardest time with marketing. Their advice? Be confident in your decision and move on.
- Skip the bull and bear and stay neutral. Establish a range and trade in between. Don’t sell at the low end or ignore marketing opportunities at the high end.
- Stay focused on your farm and don’t get worked up by what’s going on around the world. Your market is your five closest elevators, not the Board of Trade.
In the end, Tommy said that you have to spend your time playing the cards you have.
“Keep an eye on your local cash market because that is where you’ll be able to sell your grain. You’re not selling your grain to South America, you’re going to sell your grain to someone in your backyard. Go look at the five closest elevators to you — that’s your market. You’ll do a lot better if you focus on what’s going on there.”
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