You Are Not the National Average

This time of year, we hear about national averages daily – planting progress, emergence, crop progress…  but the thing is, you’re not growing or selling a national crop. That’s why it can be risky to compare your fields to the national average.

Take the northwest region of the corn belt, for example. Because of the prevalence of irrigation in this area, yield typically runs higher than average, meaning that local supplies are often in surplus compared to the national average. This becomes a critical factor when looking to set basis levels on old crop or grain in storage.

When hearing new national average numbers this year consider the following tips before making any grain marketing decision:

  1. National averages and market prices fail to take into account local opportunities. Is there a strong ethanol demand in your area? Your local basis may be moving more frequently, giving you opportunity to capture a profitable price. Has your region suffered from lower yields year-over-year due to pest pressure or weather events? If so, it may increase the pressure on new crops, moving basis levels just ahead of harvest.
  1. Be careful about making impulsive decisions based on information available to everyone. We’re all used to seeing market prices every day – even multiple times every day. The market moves quickly, and making quick moves may result in marketing decisions that don’t support your long-term strategy. Look for profitable levels, and prioritize your marketing goals accordingly.
  1. Know that local yields aren’t driving market prices or production expectations. This is key to understanding how the market is behaving. Looking at headlines or daily trade, and forgetting this larger national picture could lead to quick decisions. Yes, it’s good to be proactive, but so too is making sure your marketing decisions are part of your long-term strategies. A well-seasoned advisor knows that it’s important to look at year-over-year expectations for the most accurate forecast.
  1. Learn about factors influencing your basis. New crop will be influenced by old crop. New crop October, for example, may not move as much - maybe once every 2-3 weeks. If we are tight on old crop, the pressure on new crop will increase. Typically, you can look for new crop basis levels to move in late August/early September. You might see old crop moving more frequently, but this could be the effect of a separate cause. A strong demand for ethanol in a particular geography or the presence of many ethanol plants in the surrounding areas may cause basis to move more frequently. How often basis will move during growing season and if those changes will vary as you get closer to harvest, is another question. 
  1. Last year’s crop is not this year’s crop. This can lead to poor grain marketing decisions. For example, last year, many farmers in Nebraska had false hope because of that year’s low crop rating score. However, we ending up seeing some of the best crops the region had ever seen. Farmers were not acting because they were prepared for the prices to go up, when in fact, the markets kept moving lower.

The right marketing advisor can also use his or her relationships in your area to find you new opportunities. Grain buyers often approach grain marketing advisors to find grain and these opportunities may be outside of your typical destinations. He or she helps you focus on what your local opportunities look like, despite what national averages are telling you. You’re not the national average.