GRAIN MARKETING EDUCATIONAL PROGRAMS TO IMPROVE NET INCOME

1. GRAIN MARKETING EDUCATIONAL PROGRAMS TO IMPROVE NET INCOME Tregoning, D.W., County Agricultural Agent and County Director, Maryland Cooperative Extension ABSTRACTGrain producers have typically been very efficient producers of grain but have not been very good marketers often content to accept prices at or near harvest lows. A grain marketing club was established in 1991 in an attempt to improve farmers grain marketing skills. The group meets at a local restaurant every 2 to 3 weeks for breakfast and a 1.0 to 1.5 hour educational workshop. As a group, a grain marketing plan is developed using a model farm. Mock cash and futures transactions are conducted based on the written marketing plan. Farmers are educated about the mechanics of using futures and options, understanding all the marketing options available and chart local grain basis each week. This Agent leads all marketing discussions, provides education on various marketing tools, keeps and maintains a record of all transactions, prepares handouts and compiles year-end marketing data. As a result of these efforts, 39 Montgomery and 12 farmers from neighboring counties have improved their grain marketing skills. Eighteen farmers attend 80 per cent of the meetings. Fourteen farmers attended less than one third of the workshops and seven farmers attended three or less meetings. Farmers marketed in the upper one third of the price marketing range in 2003. When the program started in 1991, farmers typically marketed in the bottom one third of the yearly price range. Club Members Study Their Latest Marketing Transactions Montgomery County grain marketing club members account for 26,925 (87%) out of 31,100 total County crop acres. Results Figures 1, 2 and 3 illustrate the success of the program over the past four grain marketing years. Participating producers have averaged $.23/bushel higher than harvest prices on corn. They’ve averaged $.26/bu. better than soybean harvest prices and have beaten wheat harvest prices by an average of $.44/bushel over the last four years. Prices have risen into harvest in two of the last four years making revenue increases even more impressive. Montgomery County Marketing Club farmers increased their gross receipts by $2,084,880.00 over the harvest price over the last four marketing years! A survey of 33 current program participants was conducted in 2002. As a result of Extension’s grain marketing educational programs 18 producers had improved marketing practices, 23 had increased their knowledge of grain marketing techniques, 13 regularly use futures and options marketing tools to assist them in marketing grain at higher prices and as a means of managing risk. Grain crops account for 36% of all farm land use in the County Teaching Methods & Materials A variety of teaching vehicles is utilized to drive home the educational message. Regular meetings are one key element. The group meets approximately 22 times per year. The primary vehicle for education is the hands – on experience of using a model farm for marketing. The Montgomery County Model Farm grows 500 acres of corn, 250 acres of soybeans and 200 acres of wheat. Farmers make group marketing decisions as to when and what to sell and what futures marketing techniques to use if any. Farmers receive a packet of information for each and every workshop which contains the latest futures prices, cash prices and nearby and harvest basis data. County loan deficiency payments are tracked weekly. Several educational articles on outlook, weather, foreign competition or other timely topics are included. All model farm transactions are included and updated for each meeting. The section on soybeans for the 2004-05(through July 1, 2004) marketing plan is included below. SOYBEANS(2004-05) Marketing Plan No. Acres-250acres Expected Yield-42 bu./acre Total Production-10,500 bu. Variable Expenses/bu-$5.12 Projected Average Price-$6.20 Initial Cash Target Price-$5.75/bu. Marketing Transactions 12/17/03-Forward contracted 1,000 bu. of 04 crop @ $5.84/bu. 2/12/04-Forward contracted 1,000 bu. @$6.00/bu. 3/3/04-Forward contracted 3,000 bu @ $7.10/bu. 3/17/04-Bought one $10.20 Aug call option @ $.46/bu. Sold it on March 24 @ $.87/bu. Profit=$.41/bu. 3/17/04-Bought one $8.60 Aug put option @ $.38/bu. Sold it on 3/24 for $.22/bu. Loss=$.16/bu. 3/17/04- Bought one $9.00 Aug put option @ $.35/bu. 4/21/04-Sold $9.00 Aug put option @ $.81/bu. Profit=$.46/bu. 5/5/04-Bought one $9.00 August put option @ $.40/bu. 6/16/04-Sold $9.00 August put option @ $1.11/bu. Profit=$.71/bu. The marketing club has forward contracted 5,000(48%)out of 10,500 bushels of anticipated production. Forward contract prices averaged $6.63/bushel. Income from call options has increased income by $.41/bu on 5000 bu. of previously forward contracted soybeans. Downside protection through put options has increased income by $1.01/bu on 5000 bushels of unpriced production.