One of the single most difficult decisions that producers make is when to market and sell grain that is produced. Now more than ever, marketing plans are important because of the current downturn in commodity prices.
The Cyclical Nature of Commodity Prices
We all remember the day when corn was $7.50-$8.00 per bushel. Many producers that did not have a marketing plan were rewarded by taking advantage of high prices. On the other hand, many producers that had contracted crops were unable to sell all of their crops at these high prices. As we all know, grain prices could not stay at historical high levels forever, and those that stuck to their plan were rewarded when the markets started to slide. They generally had contracts in place to protect themselves from the downturn in the market conditions.
As we fast forward to current market conditions in a lower and more volatile market, the need for a good plan is more important than ever. One question that will often arise is, “When is a good time to market crop production?” One important factor to consider when determining the right time to sell is knowing what the breakeven cost of production is going to be.
Why You Should Know Your Operation's Breakeven
Many variables can make a difference in breakeven calculations, from input costs such as seed and fertilizer to taxes and land rent. All of these variables allow a producer to calculate what a breakeven price would be for a particular crop.
Once you know your breakeven point, it makes it much easier to know when to contract or market crops, as you will always know at what point you will make a profit on the bushels that are produced. A good marketing plan will never hit every high in the market, but it will help reduce the risk of selling below your cost of production and operating in a negative cash flow position.
Heartland Bank has developed a very useful and user friendly calculator to assist in determining your breakeven points. It can be quickly and easily customized for different crops and input costs. This calculator is free to use and can be a very useful tool as producers plan to market in the upcoming growing season.
As the seasons change, so do the ups and downs in agriculture markets. Having a solid marketing plan will hopefully even out the highs and the lows and give producers the confidence of growing a crop at a profitable level.
Jeff Kreycik is the Market President for Kearney and Riverdale and on the Board of Directors for Heartland Bank. He graduated from the University of Nebraska at Kearney with a degree in Agri-business and currently has over 15 years experience in banking. Outside of work Jeff enjoys spending time with his family.
