"It never hurts to sell at a profit," said Greg Lohoefener, owner of Market Data, Inc., an Oberlin, Kan., marketing firm.
As a part of the Small Grain Solutions conferences, Lohoefener stressed the importance for farmers of knowing where that profitability line is. Lohoefener has six years of experience in ag lending, 20 years in ag consulting, 22 years in farming, and 22 years as a grain elevator owner-manager.
"Marketing is the key to the profitability of your farm or ranch," he said. And discipline with the marketing plan is important.
"If you arrive at a target sales price and don't have the discipline to sell when a profit opportunity is there, it could be very detrimental to your bottom line," Lohoefener said.
"Pulling the trigger and making sales is one of the hardest things to do. While producing a good yielding crop is important, if you raise a good crop and you don't sell it at a reasonable price you still aren't as profitable as you could or should be."
Lohoefener listed several steps toward profitability, the first of which is establishing net fixed costs and assigning a profit margin. To Lohoefener, marketing is a lot more than taking the high day of a contract to sell.
The more honest approach, Lohoefener said, is to measure costs, decide on a level of profitability and design a marketing plan that assists the producer in reaching that level of profitability.
"Those costs are things like debt payments, property taxes and property insurance. There usually are offsets to those expenses called fixed incomes," Lohoefener said. "Those include USDA direct program payments, CRP payments and non-farm wage income.
"You subtract the fixed incomes from the fixed expenses then add in a margin or error of 5 percent. That gives you the amount of income needed from variable enterprises such as livestock or crops to give you your profit. You also have to budget in your marketing expense from that."
That profit margin should vary, Lohoefener said, depending on the size and diversity of the operation. Livestock and crop profits should be based on production levels.
Once it's determined what crops are going to be raised, target price levels should be established and the potential for reaching or exceeding those price levels should be evaluated. Producers should then make sales or market at those price levels in conjunction with the target prices.
Lohoefener then recommends monitoring key market information and know where the top price levels are. Also, keep good historical records available to remain focused on reality.
"Reports allow me to be like my mother-in-law and change my other mind from time to time," Lohoefener said. "When conditions change in the market, you need to be aware of it."
At that point, producers need to set a plan in motion to market their crops and livestock at or above the targeted prices.
"All the planning in the world does no good unless you have the discipline to take action. I'm talking about price insurance," Lohoefener said.
A crucial point to remember, Lohoefener said, is that producers should carefully assign the acres they have available.
"You have valuable assets called acres you can plant," Lohoefener said.
"You also need to look at the odds of hitting a futures target price and are we starting at a reasonable enough of a price to normal to have a chance to move there. Sometimes, the markets are starting at such a low price that they have very low odds of moving to the price level you need for your crop."
 "All the planning in the world does no good unless you have the discipline to take action."
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"Last year, the range of movement on Kansas City wheat and Chicago corn was narrower than usual last year while soybeans moved much wider. That's because there's a new player on the block-index funds," he said. "These are commodity funds tied to the stock market."
Index funds, Lohoefener said, look for undervalued commodities and decided to speculate on soybeans, running the price on November beans to $7.70 per bushel, well above what he said fundamentals of supply and demand dictate and therefore sending prices higher.
"How do you take advantage of all this? September Kansas City wheat futures hit $4.40 recently. The odds of that ever happening are just 6 percent. Ninety-four percent of the time since 1990, they're below that," he said. "You may say you don't have a crop to sell. That's why you have crop insurance.
"In a plan I have, you could buy a put to protect the down and sell a $4.90 call. You would have spent about $2 an acre to get that and make yourself a minimum $8 return. You either are going to have insurance payments where you have grain to sell or you are hedged to market and you are taking advantage of market movement. That's simply buying a put and selling a call."
Some marketing techniques that Lohoefener said can also be used to not miss good price opportunities are:
The program produces scenarios for producers purchasing GRIP both with and without a Harvest Revenue Option (HRO), GRP, CRC/RA with a harvest price option and Multiperil Crop Insurance.
-Offers to sell, such as placing an order with a feedlot, elevator or other end user to sell a certain number of bushels at a set price.-Short hedge orders, in which an order is placed to sell a certain futures contract at a certain price level in order to achieve a target price assuming a local cash basis level.
-Put options orders, where an order is placed to purchase a put option for a set cost when the basis and cost are taken into account a minimum price is established. The key is that prices can go higher and added returns may be realized.
"Use of offers to sell and short hedge orders should be limited at pre-harvest to no more than 40 percent of dryland production and no more than 60 percent of irrigated production," Lohoefener said. "Put options should be used to cover the balance of the crop."
But again, Lohoefener stressed that it begins with setting a profit target level.
"One of the most difficult things I see is people not having discipline to act. You do all the planning in the world but if you don't act you may suffer."
