Posted by: usset001 | November 4, 2008

Celebrity Producers Search for a Pre-Harvest Marketing Advantage in Corn

terrytimerI track the performance of a number of celebrity producers who use different approaches to price grain before harvest. Using actual data since 1990, I can examine these approaches to see if there is a way (or ways) to get a price better than the harvest price with earlier sales. A summary of results from 1990-2008 can be found here. You can examine the details behind each celebrity’s approach here.

Given the collapse of all commodity markets over the last four months, it should surprise no one to learn that early sales paid off big this year. For 2008, our winner in the search for a pre-harvest marketing advantage is Terry Timer. Terry prices 25% increments in March, April and May. However, Terry will not sell at any price – she has a minimum price objective that is consistent with a break-even cost of production. In 2008, she would not sell if December corn was less than $3.00 per bushel (a number sure to rise for 2009).

Let’s meet the other producers searching for a pre-harvest marketing advantage…

Barney Binless is not interest in pre-harvest marketing. Barney sells all of his grain production at the harvest price. He is our benchmark for comparison to other strategies. 

Grandma likes to keep her marketing plan simple. She prices 10% of her new crop corn each month from January through July, or 70% of her total expected crop. Her approach sounds like a simple variation of Terry’s approach with one important distinction; Grandma does not use a minimum price objective. She sells 10% of her expected production each month regardless of price.

Justin Price only pays attention to prices. His initial selling price should coincide with a break-even cost of production (and as production costs rise, his 2009 price objectives will rise). In 2008, Justin was willing to price 25% increments with December corn at $3.00, $3.50 and $4.00 per bushel.

Peter Paperfarmer likes Terry’s approach to pricing but he “re-owns” each sale with the purchase of call options. He gets Terry’s price, plus any profit or loss from buying an at-the-money December corn call option and holding to September 15. Peter will shed some light on the value of options when they are used consistently in marketing grain.

Darla Discipline‘s approach is a combination of Justin’s price objectives and Terry’s decision dates.  She also shares Terry’s minimum price objectives.

If you have a pre-harvest marketing plan, it might be fun to compare yours to my celebrities. Which one is closest to yours?


Responses

  1. Looking back one might say that some one named Peter Paperfarmer-refarmer would have had a great chance if when using options they rolled them up. A big strategy this past year for those buying puts was to roll them up when the market went up. Also we seen some producer getting out of profitable calls instead of holding, perhaps replacing with other calls moving the min price level up, or protecting the calls once they had made money by the purcahse of puts.


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