Farmer’s Grain Marketing Decision Aidwww.webixi.com/grainguide Carl L. German, Extension Crops Marketing Specialist University of Delaware 208 Townsend Hall Newark, DE 19716-2130 Ph. firstname.lastname@example.org Prepared for National Risk Management Education Conference Phoenix, AZ April 17, 2007 11:30 a.m. - Noon
Project Description When marketing grain, farmers face two major hurdles: • Selecting the appropriate sales method. • Proper timing of sales decisions. The Farmer’s Grain Marketing DecisionAid was developed to: • Assist farmers in selecting the proper sales method for given marketing decisions. • Assist farmers in timing those decisions. • To make the farmers sales decision easier.
Grain Sales Decisions Based Upon Expected Change in Basis - Weak basis - cash price under futures. - Strong basis – depending upon location, cash price closer to futures than usual or even above futures. *Basis is used as an indicator in making grain marketing decisions. Price Trend Analysis - Fundamentals analysis - supply and demand. - Technical analysis - price charts and graphs. *Fundamental and technical analyses are usedas indicators in making grain marketing decisions.
Weak Basis If the basis becomes less positive or more negative the basis is weakening. A weakening basis occurs when the cash price decreases relative to the futures price. Basis = Cash price – futures price.
Strong Basis If basis becomes more positive or less negative the basis is said to be strengthening. A strengthening basis occurs when the cash price increases relative to the futures and the cash price is observed as becoming stronger relative to the futures.
Price Trend Analysis Tells the grain marketer how to determine price range and direction. Fundamental Analysis Based on current knowledge of supply and demand for a commodity and how prices have reacted to similar fundamental factors in the past. Stocks-to-use ratio is the key price indicator. Technical Analysis Technical indicators can provide a snapshot of the market and signal that prices are about to reverse direction. They cannot tell us how long a direction will last. Price direction determined by support and resistance indicators.
The Decision Aid- Designed to Make the Farmers’ Pricing Job Easier - • The aid’s four-section grid displays at a glance the cash, futures, and/or options on futures tools appropriate if a farmer expects futures prices to rise or fall and basis to strengthen or weaken. • For an explanation of how a cash contract, futures, and/or options strategy works, simply click on it and a description will pop up. • Easily printed and posted anywhere to assist farmers in making quick marketing decisions.
The Decision Aid (continued) Takes some of the ‘guess work’ out of farm marketing decisions. • Assists grain marketers in sorting out marketing alternatives. • Each alternative or combination of alternatives within a quad is to be considered as an appropriate sales alternative to use in making a specific grain sale for the prevailing market conditions. • For example, if the Futures Price Trend is UP and the Basis is Strong then one of the five marketing alternatives listed in the upper left quadrant would be appropriate for use in making a specific sales decision.
How to Use the Decision Aid? • Clicking on the title of the marketing alternative leads to a description of how a specific strategy works. Some of the alternatives simply involve making one transaction while others involve multiple steps to be taken in the cash, futures, and/or options market. • A click on the Futures Price Trend Up or Down links to a discussion of market factors that affect futures prices and some technical trading tools that can help the grain marketer in formulating a price outlook. • Click on “Return to the Decision Aid” to go back to the home page, The Farmer’s Grain Marketing Decision Aid. • When linking to an outside web site use the X button to return to the page. • Click on For Printer Friendly Version at bottom left hand corner of the home page to print the decision aid.
Project Credits Funding provided by:
Project Team Project Director: Carl L. German, Extension Crops Marketing Specialist,University of Delaware Linda H. Smith, Marketing Editor, Top Producer/Farm Journal Media Project Collaborators: Charlie Stubbs, Grain Merchandiser, Perdue Farms, Inc. Bruce Snow, Farmer and Grain Marketer Richard Carlisle, Farmer and Grain Marketer Don Clifton, President, Farmers First Services, Inc. Bill Herring, Broker, Man Financial, Inc.
Lessons Learned from Completing this Project • The decision aid is useful to farmers. They like the simplicity and ease of use of the aid. The aid highlights twenty marketing alternatives that can be used in making sales decisions. • Farmers need more education, technical information, and analysis on how to effectively use cash, futures, and options on futures marketing alternatives. Just getting farmers to use the appropriate sales method at the right time will make them money when making sales decisions. • Grain marketing has arrived at the ‘teachable moment’. We have an opportunity to take farmer grain marketing knowledge up a notch. • To date, the decision aid has been used by approximately 500 farmers. This use number has been achieved with little promotion. We plan to further advertise the availability of the Farmers’ GrainMarketing DecisionAidhttp://www.webixi.com/grainguide.