Posted by: usset001 | November 21, 2013

Post-Harvest Marketing Plans – Meet More of My Celebrity Producers

earleitheror

Earl Eitheror

I recently updated all of the results for my celebrity grain producers and you can find their year-by-year performance here.

What purpose do my celebrity producers serve? Each of my celebrity producers prices grain in a different manner – you might think of them as each having a distinctly different marketing plan. I use them to understand whether or not any of these approaches can capture an advantage in marketing. Let’s meet another group of celebrity producers, and learn more about their approach to marketing grain after harvest.

Barney Binless has no storage capacity for holding grain after harvest. Barney receives the harvest price each year. Every year Barney Binless gets the cash price for corn and soybeans that falls on the Friday between October 12 and 18. For spring wheat, his harvest price is recorded on the Friday between August 20 and 26.

Barney is my benchmark for comparison of other marketing approaches.

Sally Sellthecarry “sells the carry” when carrying charge is greater than 140% of interest costs at harvest. To sell the carry in corn or soybeans, she places her crop into on-farm storage and sells July futures on the Friday between October 12-18. She lifts the hedge (buys back July futures and sells cash grain) on the Friday between May 25-31. In wheat, she places her crop into on-farm storage and sells March futures on the Friday between August 20-26. She lifts the hedge (buys back March futures and sells cash grain) on the Friday between December 1-7. Her price from the storage hedge is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

If carrying charges are small at harvest (less than 140% of interest costs), she sells her grain at harvest, just like her neighbor Barney Binless.

May Sellers holds her grain unpriced in on-farm storage. She sells her corn and soybeans on the Friday between May 25-31. She sells her wheat on the Friday between December 1-7. Her final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

Earl Eitheror mimics Sally or May, depending on the size of market carrying charges at harvest. When the carrying charge is greater than 140% of interest costs, Earl sells the carry (like Sally). When the carrying charge is less than 140% of interest costs, Earl holds grain to sell in the spring (like May). Prices are calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

Peter Paperfarmer is like Barney Binless – no on-farm storage and forced to sell his grain at harvest. However, Peter re-owns his corn and soybean crops on November 1, with the purchase of an at-the-money July call options (May call options on September 1 for wheat). Peter maintains his option position until expiration (mid-June for corn and soybean options, mid-April for wheat). By the following spring, Peter’s price will be the same as Barney’s price, plus any profit or loss from buying at-the-money call options and selling them at expiration.

Hank Holder holds his grain unpriced in on-farm storage. Ever the price optimist, Hank holds his grain in storage too long, and he is forced to sell his grain just before the following harvest, to free up storage for his next crop. He finally sells his cash corn and soybeans on the Friday between October 1-7. He sells his wheat on the Friday between August 20-26. His final price is calculated net of a full year of on-farm storage costs (interest plus an in/out handling and shrink charge).

Margery the Fortune Teller stores grain on-farm and uses her crystal ball to forecast the highest cash price in the year ahead. She sells the highest cash price during the year after harvest (based on weekly cash price data starting October 1 and up to September 30 of the next year for corn and soybeans. Starting the Friday between August 20-26 and up to August 19 of the next year for spring wheat). Her final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

Rocky Bottom is a hard luck grain marketer, always managing to sell the low price in the market. He sells the lowest cash price during the year after harvest (based on weekly cash price data starting October 1 and up to September 30 of the next year for corn and soybeans. Starting the Friday between August 20-26 and up to August 19 of the next year for spring wheat). His final price is calculated net of on-farm storage costs (interest plus an in/out handling and shrink charge).

Margery and Rocky represent the high and low prices, respectively, and more benchmarks for comparison.

Wally Whipsaw uses 20/20 hindsight to make post-harvest sales this year when he should have sold last year, based on the high price in the previous year (per Margery). Does this seem like a silly approach to marketing? I happen to believe it is the most common marketing approach used by grain farmers.


Responses

  1. How does one mimic Earl Eitheror

  2. Actions are taken at harvest. When carrying charges in the futures market are large, Earl stores grain on-farm and sells the carry by selling a deferred futures contract (the July contract – the last true “old crop” contract of the same crop year). When carrying charges are small or inverted (see soybeans this year), Earl places his harvested grain into storage for sale in late May.


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