November is usually a good month for reflection. We take a look at what has happened over the past few months and remember the good as well as the maybe not-so-good. We work on our plan for the upcoming year. For lack of a better term, I’ll call them our goals. If we want to be honest with ourselves, it is our goals that keep us focused on our daily tasks.
I once was given some very wise counsel when it comes to goals, and it has been a very positive influence on where I am going as well as how to get there. Here it is: “If your goals don’t scare you, they’re not big enough.”
Now, there are some who feel goals need to be realistic and something we have a very good chance of reaching. I couldn’t agree more, but that doesn’t mean they shouldn’t be lofty. Let’s look at a couple of different examples, with the first being a high school volleyball team. The coach knows the players are very good athletes. However, the team this year is comprised of mostly sophomores and juniors. They’re good, but they lack experience. The goal is for the team to finish in the top 25% of the league. Since there are 12 schools in the league, only three teams can achieve this goal.
Now, let’s look at farming and ranching compared to the volleyball team. In our industry, every one of us has the opportunity to contract the commodities we produce in the upper 25% of where those commodities have traded for the year. We not only have the opportunity, but every one of us can accomplish this goal. It isn’t limited to just a few – we all can do it. Isn’t that exciting?
In order to accomplish this goal year in and year out, we may need to look at how we market just a little differently. For example, a producer at the end of September contracted his soft white wheat for $10.50 per bushel. They were pleased with this price – and should be, as it is a good price. However, was $10.50 in the upper 25% of soft white prices for this crop year? The answer is: no, not by a long shot. In fact, they would have contracted their wheat with the Chicago December futures contract in the bottom 30% of the trading range.
Now, I know hindsight is good, but looking at just where we have been will help us learn maybe how we could adjust our marketing plan and take advantage of the different tools available to us. The first part of our pricing equation (futures and basis) is futures. Where is the futures contract trading, and what is the trend? Back in May, the Chicago December wheat contract was trading $4.75 higher than the middle of February and was in the top 10 percentile of the range at that time frame.
I know the market could have continued higher, but if we are looking at managing our price risk in the market, then the middle of May would have been a very good time to use a hedge to arrive (HTA) or your own hedging account to sell some futures. Now, yes, there is risk involved in trading futures contracts, but there is also risk involved in doing nothing, as evident in this example. From May into the end of September, the December futures contract traded $3.85 lower.
I’m not here to necessarily second guess anyone (I hate Monday morning quarterbacks), but I hope what we can learn from this example is: Just because we are in a production mode doesn’t mean we can’t take time to study marketing. There are 12 months in the year for us to study and look for our opportunities. We don’t need to wait until after harvest to look for our opportunities.
I encourage you to now take a deep breath, relax just a little and start looking for your opportunities, not only for the current crop but also for your 2023 crop.
Be safe and enjoy your Thanksgiving!
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