August 3, 2021
Preston Zacharias, commodity manager for CHS Hedging, discusses the role of diversification in grain marketing plans and how farmers can take advantage of today’s strong commodity markets.
With many moving parts in grain marketing, having the right tools in place can make a big difference in short-term revenues and long-term value.
“Grain marketing is one of the pieces that puts the margin on your farming operation,” says Preston Zacharias, commodity manager for CHS Hedging. “Marketing is one of the major players in making your farm profitable.”
Leverage strong commodity markets
Zacharias suggests farmers should consider playing some defense in today’s bullish commodities markets. “As we get beyond pollination for corn and wheat and there’s some harvest occurring, you may have an idea of the size of your crop,” he says. “In a year like this with a high-price environment, you should be relatively well marketed now or in the next month. I would say that anybody should be marketed roughly between 50% and 70% right now. At these levels, almost everybody can make money, assuming they have the production.”
Diversify your marketing plan
On-farm storage is often a major hinge factor in marketing plans. “When we look at farmers’ bottom lines, the best return on investment for capital expenditure is bins,” says Zacharias, “because storage allows some diversification on when you have to sell your crop. If you have no bin space, you find yourself at the mercy of the market at harvest.”
“If you’ve got bin space and there’s an inverted market in corn and a carry market in beans, that’s the market saying you should hold the beans and sell the corn—or vice versa in some years,” says Zacharias.
Zacharias also recommends using a hedge-to-arrive (HTA) contract and basis contract, keeping them separate. “Sometimes the futures price is very good, but the basis is not necessarily that good yet,” he notes. “In that type of situation, you’d use an HTA and perhaps defer your decision on the basis and see if the market can come to you, especially if it’s harvest time and commodity prices are at seasonal lows. If you have a situation right now where you’ve got old-crop beans or old-crop corn in the bin, the cash price is probably your best option.”
Consult the experts
If grain marketing is something you’d rather take off your plate, consider using a marketing service to relieve some of the pressure. Futures and options aren’t for everybody, says Zacharias; you have to have a taste for risk tolerance. Marketing tools are available to help avoid dealing with the margin calls that come with futures and options.
There are also programs like CHS Pro Advantage, where the experienced commodity traders at CHS Hedging price a portion of your corn, soybeans and/or wheat for you. This diversifies your marketing, which can be a valuable strategy for navigating volatile commodity markets.
CHS Hedging professionals use tools that may not be accessible to many farmers, says Zacharias, which can add value to bushels and avoid leaving money on the table. “Having a professional using the tools of the market with no expense other than the initial signup is an advantage and helps remove the emotion from grain marketing.”