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Wade JohannesCommodity Risk Manager
ProEdge Marketing Central Valley Ag
Farm and cattle feedlotColumbus, NEGraduated from UNL – May 1999Johannes Farms, Inc – 1999 to 2005Cargill in Albion, NE – 2005 to 2009Central Valley Ag – 2009 to present
Central Valley Ag
Agronomy
Grain
Feed
Fuel
The full-service marketing division of
CVA’s Grain Department
Why isn’t it?
Increased revenueIncreased profitsMore opportunities
Increased input pricesIncreased volatility Handle more moneyMore Risk
The “Business Approach” to Marketing
The Seven Pillars for Successful Marketing
Know your investment• Do you know what makes you money?
Everyone’s breakeven is differentMoving parts• Before harvest project an average yield• Refigure after harvest when bushels are known
The more time and information you put in, the more you will get out• Reevaluate at least each quarter
<10% do this on their own• I never had to do that before.• “Why should I do it now?”
Answer: Higher Prices = Greater RiskWhat Got You Here, Won’t Get You ThereMarshall Goldsmith
Grocery Store Example
The Goal is Profitability (not bragging rights)
This is the way everyone talks!The Board of Trade That’s the way we have learned to market grain!Everyone WANTS to feel like the winner!!
Sales pay for your investment Measure sales against the cost of your investmentNet Profitability
Different ApproachesDifferent Mindset
“Should I sell today or tomorrow?”You either feel great or you feel like a failureFull of regrets and “what if’s”
Reduces emotionMore consistent returnsHealthier way of looking at sales
Buy Fertilizer, Sell Grain• If you buy $50,000 of fertilizer• Sell 10,000 bushels of corn
Lock in inputs, sell outputs• Cash rent• Diesel fuel• Herbicide• Insecticide
You have now hedged your input purchases with salesWhen you are done paying for inputs, you should have 10-50% left to marketEven if you are wrong, you have paid for expensesTHIS REMOVES A LOT OF STRESS!! ☺
Less Stress, Better Decisions
Percentages Stay the Same
Be sure to account for these changes!• Rotation• Irrigated or dryland?• Buying a farm• Gaining/losing rented ground• “Making room” for the next generation
Farmer A100,000 bu
Farmer B1,000,000 bu
Farmer C15,000 bu
10% 1% 66%
Making Decisions
5% increments
20% increments
10% incrementsStart here if you are unsure
It’s easy to “fall in love with bushels”• It’s tough to “fall in love with percentages!”
Risk Management – talk in percentages
Big difference in “how” they are used
In the heat of the momentCash sales“Do I sell today or tomorrow?”
More emotion
Sell ordersOptions strategiesFloored contractsAveraging contracts
Less emotion
Less emotionRational decision for the right reasonsThrow it out there and let the market workIt can be triggered even when you are not watching the markets!
We recommend a combination of both“Will it pay to have upside this year?”• We won’t know until it is done!• Diversify!!
If you are not sure, use a Target
What is a realistic price?When will this happen (what time of year)?How many bushels will we sell at $_____?When do we need to move grain?• Cash flow• Logistics• Grain quality
When will we move to Plan B?• This target is no longer realistic
Be Aware of the Time of YearAvoid “Big Round Numbers”
High $7.89 on 8/29-30/12
High $5.97 on 1/3/12
Open up Communication -Get team members
on the same page
Sell a similar percentage ahead of harvest Every Year• If 50% is normal, stick with that
40-60%
• Avoid –80% one year0% the next
80% in ‘08
30% in ’0970% in ‘10
20% in ‘11
Big swings in percent sold result in additional stress• Even if it is the right thing to do, is it worth it?
Do not “guess” if this is a good year to sell ahead
ProEdge “portfolio” approach• Timing• Types of Contracts
Spread out your risk• “Don’t put all of your eggs in one basket”
This is easier said than done• Especially in hindsight!
401K
Johannes Farms
Floored Average
Min/Max
Triplex
Triplex Offer
HTA
Bonus Premium
Unsold
We Want to Sell 100% at the HIGH!!Is that realistic?
How often can you do this?What will happen if you “swing and miss”?
“Should I sell before or after the USDA report?”
Issue – you want to be RIGHTInbound calls three days prior to a report• Increase ~ 5x • “What’s the report going to say?”• You might be right on 90% of the numbers in a
single report• That last 10% might be the difference in the
direction of the market • ANSWER: No one knows
Moral – Do Not Try to Outguess the USDA
Take the bushel amount you want to sellSplit it in halfSell half before and half after the reportThis will Average Out the impact of the USDA report on your farm operation
Will “Upside Potential” pay off???
Split the decision in half
But it can be expensive
If you are 60% sold…You have upside on the 40% that is unsoldYou also have 40% that is at RISK
Do not get hung up on one sale • Good Sale• Bad Sale
The overall AVERAGE is what pays the bills
• Good Sale Sell 10,000 bu at the high of the year You’re so proud of hitting the high that you don’t market the other 40,000 bu that is unsold
• Bad SaleSell 10,000 bu earlyPrice goes upYou won’t “forgive yourself” for making that saleBuild pressure to hit the high with everything else
It’s the total revenue generated that counts10,000 bu @ $5.50 = $55,00010,000 bu @ $6.00 = $60,00010,000 bu @ $6.12 = $61,20010,000 bu @ $7.54 = $75,40040,000 bu total = $251,600Average of $6.29/bu on 40,000 bushels
Increased OpportunitiesIncreased Risk
Know your investment (breakeven)Make decisions based on net profitability rather than $/bushelSell in percentagesTargets vs. In-Season SalesBe consistentDiversifyThink Big Picture!
Is this how you market?
Doing what worked Last YearSelling the wrong amountWorrying about things out of your control“If only…”Trying to “fix” lower sales• Upside either:
Opens up the downsideCosts money
Swinging for the Fence• Las Vegas is in Nevada. • Your farm isn’t.
Worrying about what your neighbor is doingDoing something you don’t fully understandPoor communication
Consider the ProEdge Approach!
