Marketing basics
Two-minute lessons on how grain and livestock marketing tools work, in plain words. One goes out each Wednesday in the 10:00 email. These explain the tools; the decisions are yours.
- 1.Basis: the local part of your price
- 2.Cash forward contracts
- 3.Hedge-to-arrive (HTA)
- 4.Basis contracts
- 5.Minimum price contracts
- 6.Put options: a price floor
- 7.Storage and the carry
- 8.Know your break-even
- 9.A simple written marketing plan
- 10.Revenue Protection and your marketing
- 11.Livestock Risk Protection (LRP)
- 12.USDA reports that move prices
Basis: the local part of your price
Cash price = futures + basis. Basis is your local market's adjustment for freight, demand and storage, and it moves separately from futures.
Cash forward contracts
A forward contract sets the full price (futures + basis) today for grain you deliver later. Price is locked both ways, and you must deliver the bushels.
Hedge-to-arrive (HTA)
An HTA locks the futures part of the price now and leaves basis open to set later.
Basis contracts
A basis contract locks the local basis now and leaves the futures price open to set later.
Minimum price contracts
A minimum price contract sets a floor and keeps some upside, for a fee built into the price.
Put options: a price floor
Buying a put sets a floor under futures for the cost of the premium. If prices rise, you lose only the premium.
Storage and the carry
When later futures months pay more than nearby ones (a carry), the market pays you to store; compare that with your storage cost.
Know your break-even
Your cost per bushel is the yardstick for every pricing decision; it's total cost divided by expected bushels.
A simple written marketing plan
A plan sets price targets and dates in advance, so you sell in pieces instead of all at once under pressure.
Revenue Protection and your marketing
Revenue Protection guarantees revenue using the higher of the February or harvest price, which is why many farmers forward-sell up to their insured bushels.
Livestock Risk Protection (LRP)
LRP is subsidized price insurance for cattle and hogs: pick a coverage price and end date, and it pays if the index finishes below it.
USDA reports that move prices
WASDE, Crop Progress, export sales and quarterly stocks can move markets in minutes; know the dates.
General education about how marketing tools work. Not advice to buy, sell or hedge; talk with your elevator, broker, lender or crop insurance agent about your own situation.