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Farmer's Grain Marketing Decision Aid
Producers frequently say that marketing their production is the toughest management challenge they face. It is widely agreed that the influx of investment cash into commodity funds has added a new element of uncertainty to the futures component of farmers' prices. At the same time, the rapidly growing number of ethanol plants and changing transportation patterns have introduced new volatility into local basis bids.
This Decision Aid is designed to help make a farmers' pricing job easier. The Aid's four-section grid displays at a glance the cash and/or futures/options tools appropriate if a farmer expects futures prices to rise or fall and basis to strengthen or weaken. It's designed so that it can be printed and posted anywhere to help a producer make a quick marketing decision throughout a crop year. Click on For Printer Friendly Version at the bottom left hand corner of the home page.
There is no one right answer to "How do I price my crop?" This Aid is designed to assist grain marketers in sorting out the marketing alternatives that are appropriate for given market conditions. For an explanation of how a cash contract, futures, and/or options strategy works, simply click on it in one of the respective four quadrants and a description will pop up. Each alternative or combination of alternatives within a quad is to be considered as an appropriate sales alternative to use in making a specific grain sale for the prevailing market conditions . For example, if the Futures Price Trend is Up and the Basis is Strong then one of the five marketing alternatives listed in the upper left quadrant would be appropriate for use.
How to Use the Decision Aid?
Clicking on the title of the marketing alternative leads to a description of how a specific strategy works. Some of the marketing alternatives simply involve making one transaction while others involve multiple steps to be taken in the cash, futures, and/or options market.
A click on the futures price up or down links to a discussion of market factors that affect futures prices and some technical trading tools that can help the grain marketer in formulating a price outlook.
Click on "Return to the Decision Aid" to go back to the home page, The Farmer's Grain Marketing Decision Aid .
When linking to an outside web site use the X button to return to the page.
Marketing tools and when to use them
There are many futures and options strategies to use depending on your confidence in your marketing decision. For example, if you are bearish, for example, the most aggressive way to sell is via a cash sale (if basis offer is good) or a futures contract. Less aggressive measures include buying a put, selling a call, or using a put spread (buying a high strike put and selling a lower strike put).
Below is a scale from bearish to neutral to bullish depicting how these strategies might be employed.
Brian Phillips/Strategic Marketing Services
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