Posted by: usset001 | September 9, 2009

Cash Grain Sales and Dollar Cost Averaging

maysellersI received an interesting question via email from a producer, asking about “dollar cost averaging” of grain sales. I am guessing that his question was prompted from a reading of my column in the April 2009 issue of Corn & Soybean Digest (“Don’t Forget Last Year’s Crop”). To understand his question, it helps to know that May Sellers is a celebrity producer who stores her corn and soybean crops at harvest and sells in the last week of May. Hank Holder is a celebrity producer who also stores grain at harvest but, ever bullish, Hank waits too long, until the eve of the next harvest to sell his grain. If you haven’t caught on yet, Hank and May (and all of my celebrity producers) are figments of my imagination.

John wrote, “Why shouldn’t May and Hank use dollar cost averaging to sell their stored grain?  They should sell 11 percent of the grain stored each month from Jan to September and that way they would receive price averaging.  I am always told not to guess the bottom or the top of markets (i.e., stock market).  Why wouldn’t the same price-averaging payoff for grains as well?”

A good question deserves a response. I sent back the following… 

You may have a very good idea there, but I have a couple of thoughts. I still think that July and September are too late for cash grain sales. Over time, these sales would simply drag your average down. I can make the same argument for early sales in January and February. How about a compromise? Dollar cost average with cash grain sales over the March – June period. My characters were created to demonstrate marketing strategies and to illustrate interesting information about price patterns. I don’t expect anyone to sell all of their grain in the last week of May, ala May Sellers.


Responses

  1. anytime one spreads out risk it is better then not spreading risk out as many studies show that it is simply hard to do better then the average…..if you spread that risk out or scale into sales at the time that history tells us to then in theory over the long wrong one will be better off

  2. Thanks Ed.

    I like the way you compared grain sales with the stock market. I am always interested in learn more about the business side of agriculture and this post helped me understand grain sales. In my world, I buy index funds in my Roth IRA each year before taxes are due, so I invest in the market each year and gain an average price.

    Less headaches and anxiety than timing market highs and lows.

    Thanks!

    P.S. I found your site via http://agriculture.alltop.com


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