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Seller’s Remorse: A Farmer’s Worse Friend

Sep 25, 2019

Agronomy, Crop Management, Grain, Soybean, Technology

Seller’s remorse can stifle decision making for months, even years. All grain selling decisions require small slivers of fear, both that the market may go higher, and that farm revenue opportunities may be lost.

In this post, I want to discuss a couple of conversations I seem to have with growers on a regular basis:

  1. The fear of missing out on a better price and the resulting seller’s remorse that occurs after making a sale and then watching prices move higher.
  2. Many customers struggle to rationalize selling forward and its necessity, even though data tells them that seasonally it pays to sell ahead of time.

 

The Fear of Missing Out:

Even though FOMO and seller’s remorse have always been a part of life and decision making, I have recently started to see a higher prevalence.

And it stands to reason because at no time in history has the power of technology increased the ease of comparison. From major media to Facebook, you can watch live videos of farmers in Illinois planting and read the blog post of a corn buyer somewhere experiencing a drought—all from a tractor in Martin, ND.

Everyone has a platform for their voice now. The struggle is figuring out how to sift through the noise; how to tell what’s real from clickbait.

Here are some facts:

In rapidly rising markets we tend to see more fear of missing out (FOMO) and more seller’s remorse. And that stands to reason because low prices, complicated geopolitics, USDA reports (even though most tend not to believe the numbers) and a lack of transparency among grain elevators are all very real reasons for a farmer to have hesitation about selling.

I tell my customers: Please focus on your revenue needs and try to block out the noise. Don’t let the next USDA report change the 30-60 day focus of your farm’s revenue.

To help you keep that focus, remember that headlines are just words. Journalists are the only ones who really care about headlines—markets don’t! I wish I had a dime for every overzealous headline I see in agriculture. No one buys newspapers or clicks on the article titled: “Corn Prices Feel Adequate Based on Future Risk or Reward” or my personal favorite: “Politician Does Average Job this Quarter.”

We live in a time where news or opinion pieces need to be dramatic for our attention. Remember that bullish grain articles exist in 10:1 ratio; they sell subscriptions and marketing information. Hope sells!

We all invest our lives into hoping there will be profitable times ahead but certain media lives off that hope. The same could be said for brokers, equipment dealers…the list goes on, but I digress.

Sell Forward to Protect Revenue:

Sell often and ahead. Data shows seasonally it pays to sell ahead of time, and the proof is in the chart below that shows this year’s harvest. For customers who struggle to rationalize forward selling for their operation, we offer some comparisons, ideas and suggestions:

A graph of CZ 15-year seasonal market trends.

  1. Your farm is a business, so why not think of selling forward as a business manufacturing analysis? You are producing a product the minute you purchase seed or rent that extra land on a 3-year agreement. Imagine a tire factory selling all of its tires as they came off the factory floor.
  1. Property tax, health insurance, an operating note payment—those bills come every year, whether you plant or not—good crop or bad. Selling forward allows you to make sales to cover unavoidable cash necessity situations.

I know…. perfect timing for a blog regarding selling forward: corn prices are 20% off 5-year highs, and planning for the ECB to have record prevent plant acres is a one in a 20-year situation.

If you want to be bold, trade options. Wheat prices are terrible, but take a look to see what 2020 wheat prices look like. Maybe it’s a situation that allows you to sell 5 bushels an acre on a hedge to arrive contract.

Some of the best grain marketers I have seen generally don’t own a grain bin or are just starting to farm—they need cash. Those folks always need to think ahead and have a plan. My point is, we tend to do our best work in times of necessity, and having some framework with a plan will 9 years out of 10, lead to a successful revenue plan.

Many growers know to the penny how much storage they pay. But do they do the same analysis with the interest they could save at the bank? What about the opportunity to use that cash to prepay something? These are all questions you have to ask, answer honestly, and then decide when the right time to sell is.

Take-aways:

  1. Don’t regret the sale once it has happened. If you need to, journal all the reasons why you made the decision, and don’t hesitate to ask us, “Would your merchant agree with your decision-making process?” Price goes up, sell more. Missed an opportunity, sell some for 2020 crop. We can help with that.
  2. The first bushel you sell should intend to hit your bin. We often see farms only sell to fill their harvest needs, using their bins as speculation tools. Let that first sale be the bottom of a bin where you take full advantage of a carry market. Most customers use their bins well, let the asset sweat for you while you are sleeping.
  3. Deal with someone who mutually benefits from your success. Ask yourself:
    • Will the guy who called with a basis recommendation tell me their position?
    • Will they tell me where my product is going and why?
    • Can they pay me in 5 seconds after my truck is dumped?

If the answer to any of these questions is no, you may be working with the wrong merchant.

Our team at Arthur Company can help you answer the questions you have about merchandising. Let us work for you to roll some hedges into a carry and get honest fair basis advice. Working with our team allows you to be nimble with grain sales, proactive with your costs, and intentional about the sales decision you make.

At the end of the day, we can help you protect your farm’s revenue. Ask questions—we will answer because at Arthur Company, transparency is key, and that’s a promise we uphold every day.