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Market Outlook - Ask an Analyst

Submitted on Monday, October 3, 2016

What is your commodity marketing philosophy? Every client has a different situation. We start with a look at their breakeven, farm logistics, cashflow needs, storage availability and harvest movement. We have a discussion about their objectives and what they want to accomplish in a given marketing year. Then we build a plan to help defend them and try to offset market risks. What distinguishes your consulting firm from others? We have a very strong presence on both dairy and row-crop sides. It’s about 50-50 and helps us see both sides of the balance sheet a little bit better. We can get an idea of trends that are developing. What’s one action producers should take to manage risk? There are a lot of producers wishing they’d sold some more grain on the recent rally. For those who are reluctant sellers, you can make a sale and then buy a call to help justify your sales strategy. Put options can cheaply defend current opportunities while waiting for better prices. Fundamentals don’t support the recent rally in dairy. Yet we could see a bit of a price turnaround. Given those conditions, we recommend using put options in concert with futures contracts or sales to your cooperative or processor. Which marketing tool is most underappreciated? Options—largely as a function of understanding. Most producers have had little exposure to how options work and how to use them. They require a little bit of strategizing on the front end. A partnership with someone who has expertise in this area makes sense. Whose industry advice do you respect greatly? Why? Several university economists do a nice job bringing together data and how it impacts prices, including Darrel Good at the University of Illinois for grain and Bob Cropp at the University of Wisconsin-Madison for dairy. What activities do you enjoy? I’m a farm kid, so I enjoy being outside. Being in an office is tough to do, period. I enjoy hunting and fishing. I love to build and like biking and skiing. –Nate Birt