BURLEY — In another year when grain prices seem likely to trade in a mostly sideways pattern, how does a grain producer know what’s a good price?
Is it a price that’s better than what the neighbor got? Is it a price that’s better than last year?
Ben Eborn says a marketing plan has to start with knowing cost of production on an individual farm. Even though he spends a great deal of time each year putting together the University of Idaho enterprise budgets, Eborn said those are just a starting point.
“You need to know what your production costs are,” he said during the UI cereal school held in Burley.
Producers can calculate breakeven costs in two ways. One is above operating or variable costs and the other is over total or cash costs. “You won’t be able to be above total costs every year, but you should at least be above operating costs,” Eborn said.
One producer he works with in southeastern Idaho rented his farm to a neighbor because he couldn’t cover his operating costs for the year. Eborn is the UI Extension economist for southeastern Idaho.
The second most important component of a marketing plan is timing.
“There will be at least one time each year when you have a chance to price grain over the five-year average price,” Eborn said.
For wheat, that window often comes in March or April when the old crop is nearly gone and new crop harvest hasn’t yet begun. Wheat prices are often 6 percent higher during that period than the rest of the marketing year. But sell at harvest and a producer can take a 10 percent or larger price reduction. If wheat is $4 a bushel, 10 percent means 40 cents less per bushel.
“Fear and greed screw up our timing,” Eborn said. “They make us make bad decisions.”
Learning some charting techniques can help take the emotion out of marketing decisions and timing because growers can identify trends and trend reversals.
He also suggests watching the U.S Department of Agriculture reports. Not because those reports are always accurate, but because the market responds to those reports.
“They create windows of opportunity,” Eborn said. “Little windows that you can jump through and lock in a good price.”
For example, futures prices on wheat contracts fell last week after the USDA released its monthly grain balance sheet that showed wheat stocks had grown larger than traders had anticipated. World wheat production was increased by 1 percent to a record 758.3 million metric tons. World stocks were also reduced by 2 mmt to 266.1 mmt. That’s still 5 percent more than last year but less than traders were predicting. Overall, the report was slightly bearish for wheat.
Corn traded higher ahead of the report on bullish news that the South American crop is suffering from drought and increased demand from China. That news combined with an increase in export estimates from USDA helped strengthen corn prices.
Eborn admits it’s hard for producers to pay close attention to the market reports during March and April when they are busy planting the new crop, but it can pay off.
According to USDA forecasters, the national all-wheat average farm gate price is expected to average $4.60 a bushel this year, better than last year’s $3.89 but still below the average $4.89 farmers received during the 2015-16 marketing year. A 6 percent bump on $4.60 wheat adds 27.5 cents to the price.
The average corn price is expected to average $3.30 a bushel, nearly identical to the $3.36 received a year ago.
Eborn also recommends that growers write down their marketing plan before they even plant the crop. And now that the weather has turned more wintery and spring grain planting will be pushed back a few weeks, there is more time to commit a marketing plan to paper.
Producers can find marketing plan templates online at the University of Minnesota Center for Farm Financial Management website at www.cffm.umn.edu.
Developing a marketing plan is not difficult, Eborn said, but it does take discipline. The plan should include projected cost of production, crop insurance and projected yields along with decision dates.
“It we don’t set a deadline, we don’t make any decisions.”
“Fear and greed screw up our timing. They make us make bad decisions.” Ben Eborn, University of Idaho Extension agricultural economist in Montpelier