1. Marketing Strategies for Volatile Markets Frayne Olson, PhD Crop Economist/Marketing Specialist Director – Burdick Center for Cooperatives (o) (c) NDSU Extension N.D. Agricultural Experiment Station Dept. of Agribusiness & Applied Economics

2. What Causes Market Volatility?
No one can predict the future!
If we knew what the future would bring, marketing would be easy.
The futures market provides a consensus price for grains/livestock in the future, given the information available today.
Price volatility occurs when new information enters the market that dramatically changes our view of the future.

3. What Causes Market Volatility?
The two most common sources of uncertainty are weather and politics/policy.
As the level of uncertainty increases, people’s planning horizons become shorter.
However, decisions must still be made.
NOTE: Doing nothing is still a decision!

4. What Impacts Your Marketing Plan?
Constraints:
Harvest Labor & Planting Labor.
Storage & Drying Capacity.
Cash Flow Needs – rents, machinery payments, operating loan, land loan, etc.
Income Tax Management.
What is your goal for pricing?
Sell at a profit (what is that number?)
Highest price possible.
Sell for higher than my neighbor!

5. What Impacts Your Marketing Plan?
Constraints:
Harvest Labor & Planting Labor.
Storage & Drying Capacity.
Cash Flow Needs – rents, machinery payments, operating loan, land loan, etc.
Income Tax Management.
What is your goal for pricing?
Sell at a profit (what is that number?)
Highest price possible.
Sell for higher than my neighbor!

6. Marketing Plans - 101 Reminder – Four key parts to a marketing plan:
Set pricing objectives.
Set timing objectives.
Choose the appropriate tool.
Monitor markets and update if major changes occur.

7. Marketing Plans - 101
The hardest part of creating a marketing plan is the first thing that must be done!
Setting Price Objectives:
What are current price trends?
What event or condition might change this trend?
What changes should we watch for?
What is the upside potential?
What is the downside risk?

8. My View – A Starting Point
Key variables to watch:
First killing frost in corn belt.
Watch both corn and soybeans.
Impact – low test weight corn and frozen soybeans.
Strong likelihood of short-term price rally.
How High?
November 8, 2019 USDA Production report and WASDE.
Updated yield estimates.
Final production values will be released in 2019 Crop Production Summary in early February 2020.

9. My View – A Starting Point
NOAA - National Weather Service

10. My View – A Starting Point
NOAA - National Weather Service

11. My View – A Starting Point
Key variables to watch:
U.S. – China trade negotiations:
Steady progress is required to support crop prices.
May – July is most likely time frame for an agreement (my opinion!).
Export sales levels:
Weekly updates.
Usually limited “shock value” but impacts market psychology.
Steady sales will support prices and limit downside risk.
Weak sales will allow prices to drift lower.

12. December CBOT Corn Futures
DTN Prophet X – pm

13. November CBOT Soybean Futures
DTN Prophet X – pm

14. December MGEX Spring Wheat Futures
DTN Prophet X – pm

15. My View – A Starting Point
Will the market pay you to store grain?
What is the “carry in the futures market”?
What will happen to basis?
Basis Changes in ND/NW-MN
Corn – will remain strong unless the region has a problem with low test weights.
Soybeans – little change until China trade agreement is reached.
Spring Wheat – some improvement beginning in January.

16. Carry In The Market
DTN Prophet X – pm

17. Economics of Storage
NDSU Grain Storage Cost Calculator

18. Strategies for Product Sellers
ACTION
Basis Contract
Minimum Price Contract
Sell Cash (or Forward Contract) and Buy Calls
Sell Cash (or Forward Contract) and Buy Futures
ACTION
Store or Wait to Forward Contract
Delayed Pricing Contract
Minimum Price Hedged-to-Arrive
(HTA) UP
FUTURES
Futures
Futures
Cash
Cash
TIME
EXPECTED
CHANGE FOR
FUTURES
AND BASIS
TIME
BASIS STRENGTHENS
BASIS WEAKENS
ACTION
Hedge (Sell Futures)
Hedged-to-Arrive
(HTA) Contract
Buy Put Option
ACTION
Cash Sales
Forward Contract
FUTURES
Futures
Futures
DOWN
Cash
Cash
TIME
John Ferris
Michigan State University
TIME

19. Questions?