Mark Gold of Top Third Ag Marketing, was the lead-off speaker at the 2009 Profit Maximizer Wheat Summit sponsored by Bayer CropScience, High Plains Journal and KFRM.

“Grandpa told Dad and Dad told you, ‘don’t sell it until it is in the bin’—and for a 150 years that was good advice,” Gold said. “But now with new products like RA (revenue assurance) and CRC (crop revenue coverage) insurance, we feel much more comfortable about selling crops ahead of time.”

Gold said American farmers are the best producers in the world, but they historically sell their crops in the bottom third of the market in any given year. Producers cannot afford to pay high inputs and then sell their crops at cheap prices.

“Managing your risk by becoming better marketers will be critical to maintaining profit margins,” Gold said.

Farmers can become better marketers by doing four things, Gold said. First, spend more time on marketing. Gold encouraged the producers at the Profit Maximizer Wheat Summit to spend at least five minutes a day on their marketing plan.

“Put a chart up and track the basis,” Gold said.

Next, combine effective crop insurance with your marketing plan. Crop insurance allows producers to sell crops ahead of time and sometimes well ahead of time. Gold said last year he recommended growers have 100 percent of their guaranteed bushels sold by Aug. 1. In addition, he suggested they sell 50 percent of their guaranteed bushels for the 2009 crop. It was an opportunity to take advantage of two years of historical prices.

Third, use options to manage risk. Use put options to protect unsold bushels and buy call options to replace the grain you have sold. Gold explained a put option as an insurance policy a producer can buy today to protect the price of his wheat until he sells it. A call option is used once a producer has sold his grain. Gold said it is like a lottery ticket, in case prices go up.

When a producer buys a put or call option, what he spent is what he is risking. He always knows what his risk is with options. There are no margin calls.

“The biggest problem with options is that 85 percent of them expire worthless,” Gold said. “Many of them have good money in them at some point but producers don’t pull the trigger. Manage options like an asset.”

Two factors determine if an option has value. Does the risk/reward ratio justify the expense? Gold said he prefers a 3:1 risk/reward ratio. The most important factor in determining if an option has worth is where prices are, historically.

Finally, don’t become a speculator. According to Gold, the chance of a producer competing with professional traders and coming out on top is slim to none. Gold said it would be about as successful as him trying to run a farm. Historically, outside speculators only beat the pros 7 percent of the time.

“You can’t beat the professionals in Chicago,” Gold said.

In 2009, producers are facing huge risks. Land prices are very high. Input costs are very high. And the local basis is extremely wide.

“Managing your risk by becoming better marketers will be critical to maintaining profit margins,” Gold said.