Keep the madness out of farming

March here. The warm-up is on, the grass is getting greener, the barn doors are opening, and the greatest event known to man is just around the corner: the Final Four!

As my kid got older, I couldn’t wait to see who was in and who was out, filling in every line in my bracket once they announced the championship teams. Now, several years later, my passion for college basketball is still there, but it’s my appreciation for players and coaches that has changed. Countless hours of practice, film study, and strategic planning are spent preparing them for their time in the spotlight.

But no matter how much physical talent the national champions have each year, I think those times when there’s no one around, no one watching them, no one cheering on them, matter the most.

Preparation is key

I don’t think the world of farming is much different from college basketball. Each year we have the opportunity to cement our place in the history books of our personal farming operations. As the harvest comes to a close each fall, we’re allowed to wipe the slate clean and start another season fresh.

God even gives us a few months of enough time to walk into the movie theater and study what worked and what didn’t work in the past year. I know many of you are doing exactly this thing right now to prepare for Factory 2023.

I keep hearing about the many planter modifications, steering improvements, and tractor upgrades that many of you have done to improve your production and efficiency. However, purchasing this equipment is only part of the equation. The best offensive teams still have to play great defense if they want to win.

Review your playbook

So as you look back at 2022, don’t forget to include your cereal marketing in that movie session. Try to remember your thoughts and emotions as the year goes by. Did you allow external “crowd noise” to alter your marketing decisions when the game was on the line? If so, how can you prevent this from happening again?

One of the hardest things to deal with when it comes to marketing is inclement weather during the growing season. Last year was a prime example of this, particularly in the western corn belt.

The drought that many cultivators have experienced and are still dealing with is very stressful. But you can’t simply sit back and do nothing. The market is always moving and changing, giving us opportunities no matter the situation.

Is there a way to address these key production concerns, while at the same time moving forward and maintaining profitable levels?

Options and insurance make a great team

The answer to the above question is, “Absolutely!” But it takes teamwork to get the job done.

Your production concerns are obviously managed by your crop insurance plan. It’s the only way you can really avoid a production disaster. But you should not use crop insurance as your only marketing plan. Does it provide a good starting point? Yes, but it’s only part of the equation.

You need something that will set a lower price no matter what you raise each year. This is where using put and call options can really help.

If you want to price in a large portion of your crop before harvest, buying CALL OPTIONS gives you the upside price protection you need. However, if you are like me and prefer to wait until you feel confident you have a good crop before pricing it in, you will want to BUY PUT OPTIONS to cover the downside.

For me personally, having things in their place is the difference between controlling my marketing and not having any control at all! I am amazed every year at how much better I feel when buying my POS and negative price risk protection. But the best part of using POS is that your worst case scenario is known the moment you buy it.

No matter what the market does, your strike minus the premium paid is all you have at risk. Even if you, unfortunately, had that disastrous drought year like most of us did in 2012, your only risk is still a premium upfront. Since you haven’t priced the beans to the elevator yet, you don’t have to worry about buying those bags back at the mark-to-market price.

Consistency always wins

We all like to try and predict what prices will do next by reviewing what they did in the previous year. We draw imaginary charts that show lines reaching important levels that will turn the market around. But the simple truth is, none of us really know.

Rather than charting, we should spend our energy developing a strategy that can be used year after year no matter the situation – one that manages downside risk, while giving us the ability to stay involved in the upside.

Will there be times when having no plan at all may still work? Sure, just look at the last two years. Those who sold their grain directly through the scale in the fall fared just fine. But go back and do some research on the last 20 years. What you will find is that 16 of those 20 have December corn futures that set pre-harvest highs. In fact, most of those years the summit was set in May or June.

So don’t give up on what you were doing. Force yourself to stay still. Even the best coaches in the world can’t predict what their opponents will do every night, but they know the strengths and weaknesses of their teams better than anyone. They develop a game plan that uses these strengths to their advantage.

March is a huge month for all of us. So, get your cash rent paid, your crop insurance package, your crop covered in pantries, and then sit back and enjoy the madness!

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