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Making Good Use of Merchandising

Every new crop gives us the chance to apply lessons learned from marketing past crops. The following are a few marketing rules of thumb that have make themselves clear over the last several years.

Most of the time, prices for a particular crop, reach their highest at some point before that crop is harvested.

The biggest reason this is true is that prices after harvest must be reduced by the costs of storage and interest. In other words, if the cost of holding a crop after harvest is $0.04 per month, then four months after harvest the price must have increased by more than $0.16 per bushel to produce any extra money when the crop is sold.

Another reason is that prices avaliable before a crop is harvested, or even planted, are based on people's opinions about a million factors, or artifically pulled up by the issues with the current crop, and have no bearing in reality.

There are occasionally exceptions to this rule of thumb, however, over a lifetime of farming more money is lost than earned by selling crops after harvest.

Without a plan, high prices don't necessarily result in more income.

Chances are many of you know someone who didn't sell, or didn't sell enough during the rally. It's hard to sell on the way up and even harder to sell on the way down.

Those who routinely make tough selling decisions usually rely on some form of discipline, often a written plan that says, "when the price gets to X, I will sell". Once a simple, written plan is in place, it's much easier to set up disciplined processes to set that plan into action and have the plan executed automatically, with no opportunity for second-guessing and what-iffing that causes so many people to put off important decisions.

Low prices don't necessarily mean less income.

If you are faced with lower prices but substantially higher yields, chances are your income from the crop will be much better than it might seem at first glance.

Yields make a big difference in profitability, and higher/lower yielding years usually result in better returns than lower/higher price years.

Staying in the market after harvest always costs, but it can be risk-free.

Unfortunately, storing grain agter harvest offers no guarantee that the price won't go down. The option market offers a much better opportunity; for a cost that is similar and in some cases lower, you can participate in higher prices and be completely protected against lower proces- the best of both worlds!

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