I am the first to admit that commodity marketing is not in my wheelhouse of expertise. However, working in an office with a highly successful agricultural marketer during graduate school at Cornell University and interacting with other highly respected people in the marketing field have been educational and enlightening experiences over the years.
Scott Mickey, a former student of mine and a Farm Business Consultant at Clemson University, recently asked my team to review some of his commodity marketing research for content and presentation. Scott’s focus in the initial research was evaluating the benefits of marketing corn during the planting season versus the harvest season. Utilizing over 30 years of data, he found that it was financially beneficial to market in the planting window 75 percent of the time. The average benefit was $0.19 per bushel over this 30-year period of data. An extra $0.19 per bushel amounts to $38,000 of additional revenue annually on 1,000 acres of corn yielding 200 bushels per acre. In some years, fundamental analysis would suggest “waiting,” but the disciplined marketer should always consider whether or not planting prices offer a good marketing opportunity for their business.
Of course, I was not satisfied with only examining the averages. How did the commodity economic super cycle impact the analysis? During the hot economic times in agriculture, it was advantageous to market during the planting period 60 percent of the time and during harvest less than 40 percent of the time. In 2012, there was a $0.20 per bushel disadvantage in marketing during planting. However, the extreme commodity prices experienced that year were created by a unique combination of weather, ethanol, and demand from emerging markets spurred by the low value of the dollar. In other words, the “shoot from the hip alpha marketer” hit the grand slam home run by waiting to sell grain during the fall marketing period in 2012; their lack of marketing discipline and planning was rewarded.
Did the great commodity super cycle take away the perceived financial benefits of marketing grain during the planting season? From an outsider looking in, it appears that the data and my interactions with producers in the field would indicate that it has. As producers continue to experience price volatility and tighter margins during the “new normal” of agriculture, marketing discipline will carry increased importance.
In the next column, I will examine marketing corn post economic super cycle to determine the impact on the income statement and the balance sheet of producers.
For more from Dr. Kohl, follow his "Road Warrior" blogs.