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Leave the Emotion Behind: Know Your Numbers

October 17, 2018

 

Hello again! I hope harvest in your area is going as smoothly as can be expected this year with challenging weather conditions across the province. Recently I have been busy making plans to reach my personal objectives for the Advancing Ag year. My mentor for the year, Geoff Backman, Marketing Specialist for the Alberta Wheat Commission, has previous experience that overlaps with parts of my daily work tasks, allowing us to relate easily and get down to business right away.

 

Part of my daily routine involves helping farmers create grain marketing plans, and I truly enjoy sitting down to create a strategy that is custom-tailored to the farm operation. Often, the first question is “what’s the best price?” or something similar, when in reality there are many questions in the marketing equation. I want to pose a few questions that farmers can ask themselves to better understand their operation and provide a foundation to build grain marketing plans upon, before harvest and before looking at grain prices.

 

  1. Storage: If you do not have ample storage for your expected crop yields, how many bushels do you need to move off the combine? What is your risk tolerance for storing grain, and how long are you comfortable holding grain through the crop year? Do you have aeration bins with moisture or temperature cables, or what levels of grain moisture and temperature change your grain movement plan?

  2. Cash flow: When are bills due, and how much is due? Can you borrow money to cover payments, if needed, and what is your annual interest rate? How much income/expense do you want this tax year?

  3. Operations: How much does it cost to bin grain versus haul off the combine? What is your transportation cost per metric tonne per mile? If you use hopper bins for grain in the fall and fertilizer later in the year, what is the financial difference between increasing fertilizer cost and increasing grain prices, based on your bin size? What value per month per bin, or per bushel, do you attribute to storage risk on farm?

Do you notice something similar about all your answers?

 

They should all include numbers quantifying your constraints and risk tolerance. Take the emotion out of your analysis and use these hard numbers that do not change based on harvest conditions, yields, or how you are feeling that day. These are your numbers and your constraints, using measurable bushels, dollars per bushel, percent interest rate, desired return (in dollars or percent) for taking on risk, or any other numerical measure of a constraint in your operation.

 

This crop year, I challenge you to know your numbers inside and out and make your grain marketing plans numerically driven instead of emotionally driven.

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