The market is full of surprises, and we continue to see the grain markets rally. Recently seeing a lot of volatility in both corn and soybeans, it leaves many wondering what to do next. Will the market go up? Will the market go down? Many producers hold out because it may go higher, however, that philosophy could mean a missed opportunity. Many producers also find themselves looking in their rear view mirror, saying I wish I would not have sold so early.
The reality is no one has the ability to look into the future. Sales are made based on the information a producer has at that moment in time. That being said, a rally like this was unexpected. A producer who sells ahead makes that first sale and HOPES it will be the worst sale of the year. What?!?! You may ask, then why make it? To that I say, to manage your risk, to lock in a profit. For example, if a producer sold 40% of their new crop beans at $10.50, and come harvest time beans are worth $12.00, the producer is averaging $11.40 futures price on their entire crop. However, if the harvest price drops to $9.00, the average price would then be $9.60.
Selling ahead a solid way to protect your operation from a bear market. Without risk management, producers stand the risk of having a losing year. Market timing is everything, and locking in profitable sales to guarantee income is never a bad idea. Selling on the way up and continuing to “grab profits” from the market is a guarantee of success. Waiting for a home run often back fires when the market rally ends abruptly and a producer finds himself unsold and currently at an unprofitable level.
When it comes to marketing, many find it to be very emotional. Never beat yourself up for selling too early or selling too late. The key is to lock in profits incrementally and guarantee profits for your family.
Final thought: This principle also applies to producers who sell from their bins not selling ahead). Selling incrementally and locking in profit as they become available is a sound business practice. Selling ahead only offers a larger window of opportunity to make sales.