| PROJECT SUMMARY |
Crop Marketing in West Tennessee: How to Teach Producers to Make the Call
One of the most challenging aspects of row crop marketing is taking the action necessary to establish a market price. Extension economists have decades of teaching experience in explaining various pre harvest marketing tools that can reduce price risk. But the gap between knowing how marketing tools work and actually utilizing them to price produce at the farm level can be large.
To help determine how best to bridge this gap between knowledge and action, a marketing workshop was taught in January, 2004 to West Tennessee row crop farmers. The workshop was 2 days in length and dealt with both the tools available and the outcome of using the tools. Selling at harvest, cash forward contracting, hedging with futures and options, and storage were taught using a case study approach. The audience consisted of 17 full time farm families and 16 Extension Agents.
The farm families attending were asked to develop a personalized marketing plan before leaving the workshop, and to answer a survey at the end of the 2004 marketing year. The survey was designed to determine if the attendees followed their marketing plans and what actions were taken during the marketing year. Attendees were also asked to evaluate the workshop at the end of the second day.
The Workshop
On January 27 & 28, 2004 an educational workshop was held in Jackson, Tennessee. Attendance included 24 farmers representing 17 farms, and 16 Extension Agents.
In aggregate the farms represented at the workshop produced:
- 1,061,014 bushels of corn in 2003, or 1.3% of the total Tennessee crop.
- 13,344 bales of cotton in 2003, or 1.5% of the total Tennessee crop.
- 232,760 bushels of grain sorghum in 2003, or 7.1% of the total Tennessee crop.
- 621,970 bushels of soybeans in 2003, or 1.35% of the total Tennessee crop.
- 257,000 bushels of wheat in 2003, or 1.9% of the total Tennessee crop.
During the 2 days, the participants were instructed on how to evaluate and use marketing tools including cash forward contracting, hedging using the futures market and options, and storage. Participants were asked to complete a marketing plan for their own farm in the final session of the 2 day workshop.
Participants were asked to evaluate the workshop. They were asked to rate on a scale of 1 to 10, with 10 being excellent, the following categories (with the average score received):
- Meeting’s Content: 9.2
- Level of Instruction: 9.2
- Notebook and Instructional Material: 9.2
- Examples Used: 9.1
- Meeting’s Length: 8.1
- Facilities: 9.1
Participants were asked to respond to the following question: “What statement best describes your level of understanding about marketing tools and risk management at this time compared to before this meeting? (check one)”. Number of responses are included below.
I understand a lot more about risk management and using marketing tools. 16
I understand a bit more about risk management and using marketing tools. 1
My level of understanding about risk management and using marketing tools has not changed. 0
This meeting has confused me. 0
Post Workshop Surveys
Workshop participants were asked to fill out a survey in February, 2005. The survey was designed to account for each unit of production sold off their farm during the 2004 marketing year and to have the participants evaluate their own marketing decisions. Participants were asked how each unit of production was marketed and how the amount marketed in 2004 compared to how they normally marketed their production. Table 1 lists the marketing decisions for soybeans, corn, wheat, and cotton. There were not enough observations in cotton to report on each category in the table.
Table 1. Percent of Crop Marketed, Compared to Normal, For Various Marketing Tools
%CFC(1) %hedged %options %SAH(2) %Stored
norm ´04 norm ´04 norm ´04 norm ´04 norm ´04
Soy 46 47 0 0 0 6 39 26 14 22
Corn 61 42 0 0 0 0 14 30 25 27
Wheat 69 77 0 0 0 0 31 17 0 5
Cotton56 73 M M M M M M M M
1 CFC = Cash Forward Contract
2 SAH = Sold At Harvest
M = Less than 2 observations
From the survey results, it is evident that the workshop participants historically have not used the futures market as a marketing tool. No data on historic marketing results were collected, so the “normal percent” was a subjective question answered by the farm owner/manager. From Table 1, it appears that the participants sold fewer soybeans at harvest and stored more than they would normally. For corn, fewer bushels were forward contracted, and more were sold at harvest. More wheat was forward contracted by participants in 2004, while fewer bushels were sold at harvest.
Prices during the winter and spring of 2004 were at historically high levels for soybeans, and higher than recent years for corn and wheat. There were opportunities during the winter and spring of 2004 to forward price soybeans well above $7.00 using cash forward contracting. Likewise, there were opportunities to forward contract corn and wheat above $3.00 and $4.00, respectively. December cotton futures were trading above $65 in May. By harvest, local cash soybean prices had dropped below $5.00 in Tennessee while corn prices fell below $2.00. By harvest, wheat prices had fallen below $3.25 in many parts of Tennessee, and December cotton futures fell below $50 before expiring.
With relatively high prices available in the winter/spring of 2004, and with the participants having just attended the pricing workshop, the results of Table 1 appear disappointing. There are indications of more production being forward priced for wheat and cotton. But there is little difference in pre harvest pricing for soybeans, and corn early pricing actually decreased from the norm. Little use was made of futures/options to reduce price risk.
Why did the participants not take advantage of higher early season prices? In the post workshop survey, participants were asked if they made and stuck to a marketing plan during 2004. Six farm families indicated that they had made and stuck to their plan. One stated that a plan was made but wasn’t utilized. Four stated that they made no plan. Table 2 lists only those participants who stated that they made and followed a marketing plan. Those participants who followed a marketing plan priced a greater percentage of their soybeans and corn by cash forward contracting. Little difference was noted in wheat marketing. Cotton was not listed in Table 2 due to a lack of observations.
Table 2. Percent of Crop Marketed, Compared to Normal, For Various Marketing Tools: Particpants Who Made and Used a Marketing Plan
%CFC(1) %hedged %options %SAH(2) %Stored
norm ´04 norm ´04 norm ´04 norm ´04 norm ´04
Soy 43 56 0 0 0 0 42 22 14 23
Corn 66 54 0 0 0 0 18 22 17 24
Wheat 74 77 0 0 0 0 26 23 0 0
1 CFC = Cash Forward Contract
2 SAH = Sold At Harvest
There is some evidence, therefore, that those participants who made and stuck to a marketing plan took better advantage of the early season prices. This may be attributable to the difficulty in making short term marketing decisions. When discussing their marketing alternatives in January, it may have been easier to develop a plan to sell at the relatively high prices available at the time. But after the meeting, when it came time to actually decide about marketing the upcoming crop, it became more difficult to follow through with the marketing decision.
Higher yields also may have contributed to lower percent pre harvest pricing in 2004. Some farmers commented that they had forward priced a percentage of expected production, but with record high yields in many areas, the proportion of crops actually forward priced dropped.
In conclusion, Extension economists continue to look for better methods to teach price risk management. The time honored methods of teaching the tools available may, by itself, not be enough for farmers to take advantage of the tools. Price risk curriculum may have to be accompanied by the importance of developing and utilizing a marketing plan.
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| NUMBER OF PARTICIPANTS: 39 |
| TOPICS COVERED |
| Market analysis and outlook |
| Cash and futures pricing tools |
| Marketing strategies, plans and clubs |
| Financial records, analysis, and bench-marking |
