Crop marketing plans need to be reviewed and possibly adjusted as spring planting intentions change. Many farmers have taken advantage of the recent high commodity prices by prepricing or forward contracting a significant portion of their expected 2011 production. However, the cool and wet planting conditions are forcing farmers to adjust their crop planting plans based upon continually changing field conditions and weather forecasts.
Farm managers need to keep in mind that changes in planting intentions may require updates or revisions to their previous marketing plans.
The first step is to compare the number of bushels or pounds already forward priced or contracted with the revised planting intentions. For example, assume that the original marketing plan for crop A is to forward price two-thirds (67
percent) of the expected 2011 production by May 1 through incremental sales, and that this plan has been implemented. However, if 15 percent of the intended acres are shifted to an alternative crop, the forward pricing strategy for crop A now covers approximately 82 percent of the expected production.
This is not necessarily a bad plan. It simply means that the strategy used to market the remaining production may need to be changed to adapt to the smaller unpriced production level. It means that the marketing strategy for the alternative crop also may need to be adjusted because of the increased acreage and associated production.
A more problematic situation is when acreage adjustments and/or prevented- planting creates a situation where expected production is less than the the amount already forward priced. The easiest adjustments are those that involve shifting "futures only" or "options only" contract positions, which are not tied to the physical delivery of the crop. Existing futures or options positions can be retraded at any time to rebalance expected production with forward pricing strategies.
However, contracts that require physical delivery, such as forward price, futures fixed or production contracts, take more time and effort to adjust. If contract commitments exceed expected production, farmers need to contact the elevator or processor that wrote the contract as soon as possible to begin working on adjustments.
Opening and maintaining lines of communication between the buyer and seller is the most important thing that can be done. Most buyers are able to adjust to changing conditions if they are given enough advance warning and can determine the extent of the problems. The most difficult situation for the buyers, which leaves them very little flexibility, is when they do not learn about a production or delivery shortfall until harvest.