Develop a marketing plan for each crop that will be produced in 2000. Doing so could mean the difference between profit and loss for the farm. It could even mean the difference between survival and bankruptcy.

Developing a marketing plan is probably the single most important management activity on the farm: a marketing plan for each crop is essential to overall farm financial planning. Key elements include price objectives and time deadlines.

Price objectives are matched with time deadlines. About five objectives and corresponding deadlines are usually specified in a marketing plan. A percentage of the crop is sold when either the first price objective or time deadline is reached, another percentage of the crop is sold when either the second price objective or second time deadline is reached, and so on. The largest percentage could be sold at the middle price objective or time deadline.

Time deadlines for selling a crop can be derived from the seasonal price pattern for that crop. Those times of the year when cash prices are usually the highest would be picked as selling deadlines, recognizing that they may need to be modified to meet cash flow needs and storage limitations. Seasonal price patterns for many of the crops produced in North Dakota are presented in North Dakota State University Extension Service Bulletin EB-61.

Price objectives are set relative to price expectations. Consider making the first three price objectives more achievable than the last two. Minneapolis hard red spring wheat December futures prices have averaged in the range of $3.44-$4.07 in November during 10 of the last 12 years. The November average has been above the range only once, when it was $4.92 in 1995. This history implies that at least three of the five price objectives should be set in that range. The situation would be similar for the August average of the September futures.

An example marketing plan for wheat produced in 1999 could be as follows: Sell 10 percent of the anticipated spring wheat crop by April 19 or when the September futures price reaches $3.70 on the Minneapolis Grain Exchange, whichever comes first. Sell an additional 25 percent by May 17 or when the September futures price reaches $3.80, sell an additional 30 percent by November 15 or when the price reaches $3.90, sell an additional 25 percent by January 24 of the following year or when the price reaches $4.50, and sell the final 10 percent by April 25 of the following year or when the price reaches $5.00. Beyond August the next nearest futures contract price is the relevant one instead of the September contract.

September futures closed at $3.40 on December 20 which means a substantially rally must occur for the price objectives to be reached. Achieving those price objectives will require a serious threat to the winter wheat or spring wheat crops.

What should you do if the threat does not occur? A common problem for many producers is to ignore the time deadlines for selling when prices fail to reach stated objectives, a serious blow to the finances and credibility of the farm manager. Even if price objectives have been set unrealistically high, relative to outlook information, the time deadlines make the plan realistic. Since the time deadlines are based on a recognized marketing concept (seasonal price pattern), the plan is acceptable to professional farm managers and those working with them. Producers can feel that they have made a good decision, even when price objectives are not reached.

Marketing plans need to be reviewed and adjusted as new information becomes available. USDA reports generally provide the basic information for updating. This information can be supplemented by news reports of crop conditions throughout the world, weather reports, and so on.

A marketing plan can be implemented using a number of marketing tools. The best tool to use depends on the situation. The use of elevator contracts as part of your marketing strategy makes farm management sense, especially on that portion of production that can be produced with near certainty, usually the first one-third.

Cash forward contracts, hedged-to-arrive contracts sometimes called futures fixed contracts, and minimum price contracts are elevator contract alternatives that should be looked at for making preharvest sales. The best contract for a producer to use largely depends on current and expected futures prices, basis and cash prices.

The put option is an attractive marketing tool because it leaves upside price potential open and does not require delivery. But, that flexibility costs something which must be paid for at the time of purchase. Consider using put options where uncertainty is the greatest, in effect, where uncertainty involves not only price uncertainty but production uncertainty, most likely the second one-third of production, and more, sold prior to harvest.

Selling one-third of anticipated production using a cash forward contract or a futures fixed contract and one-third using put options manages an enormous amount of price risk. A floor price is established on two-thirds of anticipated production while the price is still open to the upside on two-thirds.

An example marketing plan for 14 percent protein hard red spring wheat produced in 2000.

Implementing the example marketing plan for wheat should allow producers to achieve at least the planning price being used in the NDSU budgets for 2000. Relevant planning prices for spring wheat in the fourth quarter of 2000 appear to be about $3.15 per bushel given the loan deficiency payments that prevailed during the fall of 1999. Planning prices of $3.35 per bushel are being used for milling quality durum, $2.20 per bushel for malting barley and $13 per hundredweight for nonoil sunflowers. For winter wheat, feedgrains and oilseeds, the loan rate would be relevant. The planning prices are based on normal weather for the 2000 growing season.

What kind of prices are likely to materialize if yields are the worst experienced in the last 10 years? The lowest U.S. yields per planted acre were 28 bushels in 1991 for all wheat, 87 bushels in 1993 for corn, and 31 bushels in 1993 for soybeans. These yields would require rationing of corn and soybeans in the range of 15-20 percent but not wheat although feed use of wheat would decline. This scenario could give Chicago Board of Trade prices during October-November, 2000, of approximately $3.50 for wheat, $2.80 for corn and $6.50 for soybeans. Minneapolis futures could be a $.30-$.80 premium to Chicago, depending on the quantity and quality of spring wheat and winter wheat production.

In the December Supply and Demand Report, USDA projected seasonal average farm prices for the 1999-00 marketing year of $2.45-$2.55 for wheat, $1.60-$2.00 for corn, and $4.45-$4.95 for soybeans. Relative to total use, ending stocks were projected to be 44 percent for wheat, 21 percent for corn and 15 percent for soybeans.

ZTILPAP