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Spend more time marketing your cropDoug Rich Mark Gold, Top Third Ag Marketing, asked those attending the Small Grain Solutions seminar if they spent an hour a week on marketing their grain. The answer from most of the producers in the room was no. "You are going to have to spend more time on the marketing end," Gold said. "You will have to spend some time on managing these prices." Land prices, cash rent, and input costs are going through the roof. Gold said producers can't afford to pay these high input costs and then sell their crops at cheap prices. Gold asked the producers how many of them woud be hurt emotionally or financially, if the price of wheat went back to $5 a bushel. Even though $5 is a good price, it will not overcome these high input costs. Spending time on marketing was Gold's first piece of advice. Gold said producers should spend at least five to 10 minutes a day on their marketing plan. "Managing your risk by having a marketing plan will help you succeed where others might fail," Gold said. Secondly, Gold told the producers to have effective crop insurance, such as Revenue Assurance (RA), Crop Revenue Coverage (CRC), or Group Risk Income Protection (GRIP), as part of their marketing plan. Gold said he liked RA and CRC because they allow producers to sell grain earlier than they ever could before. Now, with RA and CRC, producers can sell some bushels earlier because they are guaranteed with the insurance. "What is the worst thing that could happen to you with these phenomenal prices and you had another crop failure and were not able to take advantage of these prices?" Gold asked. "It would be heartbreaking. Crop insurance is expensive, but look at what it is protecting. Look at the value of these bushels." Thirdly, Gold told producers to use options to mange the risk. Gold said producers could use put options to protect bushels they have not sold. Call options can be used to protect bushels they have sold. "A put option is like an insurance policy you can buy to protect the price of your wheat, in case the price goes down," Gold said. "A call option is like a lottery ticket that you can buy today, once you have sold your grain, in case the price of wheat goes up," Gold said. Producers have been reluctant to use options, primarily because 85 percent of them expire worthless. Gold said to think of options like you would any other insurance policy. Gold said everyone has car insurance but they don't want to have a wreck just to collect on their premiums. Many people have disability insurance, but they don't want to lose an arm in the combine to collect on their insurance. For example, Gold said a producer has 50,000 bushels and he buys options for 60 cents a bushel plus a commission. "Now I have to tell him, don't forget, you want to lose every penny of that," Gold said. "That is the tough part." "But, as soon as you embrace it as another type of insurance, I can help you become a better marketer," Gold said. Gold said producers need to determine if an option has value. Typically, he looks for at least a 3:1 risk-reward ration to determine the value of an option. Finally, Gold told the producers to not be speculators. He said the odds of the general public beating the pros in Chicago is about 7 percent. Gold said speculating is a tough, brutal business and most people are not going to beat the pros in Chicago. "Those folks in the pit in Chicago are the best traders in the world," Gold said. "Just like you are the best farmers in the world." "When you try to find a guru, buy a newsletter, or hire someone for $3 to $4 per acre to tell you where these prices are going, you are wasting your money," Gold said. "If any of us knew where these prices were going, would we be telling you?" Gold said they have a saying in Chicago, "Great newsletter writers write newsletters; great traders trade." "My job as a hedge broker is to find out what the risk is and then protect you against that risk," Gold said. "The risk in growing wheat this year is that wheat can go right back to $4.50 per bushel." Gold said historically, the majority of American farmers sell their grain in the bottom one-third of prices that were available to them during the year. "Production has never been the problem," Gold said. "Marketing is the problem." Doug Rich can be reached by phone at 785-749-5304 or e-mail at richhpj@aol.com. Date: 4/17/08
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