"I DIDN'T SELL ENOUGH"
by Heather Moffatt, Grain Risk Management Advisor, Agricultural Marketing First

Market volatility occasionally offers short-lived price opportunities. Producers are often left having watched the run up and down with nothing, or very little, priced. The 2005 crop year started relatively quiet as it dealt with large stocks and no new news. Unexpected late season dryness in Brazil, and the new players referred to as "index funds" caught many off guard and gave us some excellent opportunities to capture strong futures prices for 2005 crops. Given more than adequate current world and domestic supplies the corn, wheat and bean prices have been surprisingly strong. July 2005 wheat prices surged to, and stayed at, $3.60 per bushel for almost a week in mid March. In the last month July wheat has gone from a high of $3.67 per bushel on March 15 to a low of $3.11 per bushel on April 18. With this market "spike" comes the question: "Why didn't I sell more?" or "I didn't sell enough." The first thing we do as marketers to take risk out of our marketing program is to diversify. Marketing success can start with two attainable goals -diversify and sell into rallies. This often means selling small percentages over the course of the marketing year. This type of strategy should enable producers to arrive at some better than average prices at the end of the marketing season.

Every once in a while we are presented with the "golden opportunity" in pricing. Interruptions in supply send prices higher, possibly higher than they should be thanks to speculative participation in commodity contracts. What do we do when presented with these opportunities? Most of us sell a small percentage. We are sticking to a plan - selling into rallies. But, what happens when that "golden opportunity" slips away, and we all know it will. Quick and violent price rallies upward do not remain, and usually only last for days. It's the same pattern: supplies go down, prices go up, we rebuild supplies, and prices go down. We've seen it many times over our marketing career, and it's going to happen again. Why didn't we sell more, and what can we do about it? First, let's examine the "why." Well.... .what if the market goes higher and I miss out on the top prices? It's human nature to want the best price possible for your products. Striving for the top can lead to confusion, disappointment and failure. To avoid this, address what high or realistic prices are for December corn, November beans and July and September wheat. If you don't know, tackle hurdle number one. The following chart illustrates the amount of time harvest delivery prices spend trading above these futures levels.

Chart coutesy of FC Stone, Indianapolis, Indiana

I have chosen the December, November and July harvest months to focus on because these months own most of your grain. It is more than interesting to note how much time futures values spend above the pricing ranges in the chart. March 11 to the 18lh, July wheat futures traded and closed above $3.60 per bushel. According to the chart, July wheat has only traded above $3.60 per bushel, 29% of the time on a 10-year average, 21% of the time on a 5-year average and 36% of the time on a 3-year average. The focus of these examples has been on futures values, not cash. Because the values of the Canadian dollar will constantly fluctuate there is a need to look at futures and basis levels independently. This wheat rally presented producers with some great opportunities to lock in price. If you are reluctant to price a large portion of your wheat based on production concerns, devise a plan that would enable you to work with this obstacle. Know your breakeven point and establish an attainable price objective. Establish a hedging program enabling aggressiveness. Sell a high percentage of production, but buy call options (these are often offered at your elevator in the form of "minimum price contracts"). The call option would allow you to cover two big risks. First, if the price of wheat futures goes up after you make the sale, you can still participate in market strength. Secondly, if you don't produce the wheat or have poor quality, the call enables you to collect the difference between the contract futures price and current market price in order to close the contract. Another alternative would be to purchase put options, which lock in a futures floor. The floor price is known, yet you still have the opportunity to participate in higher futures values as you go forward into harvest. Why didn't I sell more? Hindsight is always 20/20. Most of us need to improve our foresight. On the production side we plan well in advance for fertilizer and herbicide requirements, and seed varieties. Assessment of niche markets and premium payments are utilized. Take some time to plan ahead for pricing opportunities. When delivery months are trading higher, often deferred months are also. Take time to assess prices in the next marketing year. July 2006 wheat prices traded up to $3.60 per bushel presenting pricing opportunities for next year. Create a plan that will allow you to be aggressive when these "golden opportunities" arise. Realize the need to study futures and basis prices independently. This will allow you to get a higher percentage of your grain sold at the higher end of the market ranges, to achieve a rewarding, profitable grain marketing program.