Commodity Blog

Nov 17 2022

How Do Higher Costs Impact Grain Marketing Decisions?

A farmer's income is dependent on the timing and ability to sell grain following harvest. Grain marketing comes into play to determine when, what, and how much grain will be sold, correlating to when producers see returns from the previous growing season. Operational expenses and input costs are subtracted from the revenue of grain, tied directly to bushels per acre. In short, the ability to make the most money by growing the most grain on the least amount of land. When per acre expenses are calculated, it would be logical to think farmers want to get paid as soon as possible to remain in the black. However, not every operation is selling 100% of their grain the second it is harvested.

Producers have many options when it comes to selling grain. Because of the vast amount of marketing strategies farmers have, it can be difficult to predict what they will do in situations of inflation. Currently, the majority of producers have ordered and secured inputs for the 2023 growing season. While supply chain issues and rising prices increase the desire and urgency to do so, this is a typical practice in the agriculture industry. 

The commonality of this also means that financing is typical. Interest rates are on the rise, but most input suppliers are working to maintain lower interest rates internally when available. This undoubtedly makes financing a more appealing option, even for those who have not traditionally used it in the past. 

The key is that commodity prices are also currently inflated relative to global and historical markets. Mixed feelings about the longevity of higher prices are certainly something to consider. Those who believe prices will decline are interested in selling grain for a higher price now, rather than paying carrying costs. This will allow cash flow tensions to ease, thus creating less strain on farms operational plans. 

Throughout the 2022 season, demand has been declining as US prices remain high. This poses basis-related questions as demand and shipping logistics come into play. Current high basis indicates grain is being held but this should create an influx of available supply. However, for those who do not see markets taking a turn, store now, sell later sounds more attractive. The Mississippi River and grain transportation situations also create large piles of grain waiting to be sold and exported. With higher costs in this area, there is added difficulty in predicting decisions.   

This could open a can of worms about different crop production strategies, but the summary is that farmers have options, but only to an extent. While waiting on markets holds risk, some can afford to play and chance it due to available resources. Those who have a marketing strategy not aimed at capitalizing on current highs are the ones who must have the most sound marketing strategies. 

Despite all the question marks, higher costs and inflationary pressures are expected to continue to lead farmers to lean towards selling grain. Compounding costs increasing weekly place profit and revenue at the forefront for producers. 2023 is just around the corner, and so are the higher input bills.

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