Thinking of Margin, Rather than Price

Thinking of Margin, Rather than Price

I’m KayDee Gilkey with the Market Line Report for Nov. 23, 2012. ?
With the markets closed yesterday for the Thanksgiving holiday, today we will be visiting with Washington State University Small Grains Economics Endowed Chair Dr. Randy Fortenberry about determining at what price to sell your grain.

Fortenberry: “Well, the most important thing is figure out exactly what it is costing them to produce whatever they want to bring to the market. And accept some sort of reasonable return on investment on the first price that they accept. That means dividing their production up into a portfolio, whether it is 20 percent, 25 percent or something for the first sale-- that would vary by producer. But recognizing that when there is a good price exists relative to costs, you should just take some of that. Because nobody knows really where the top is going to be. Where ever the top is, the bottom will be just as low on the other side. So as you continue to wait for more opportunity, you are just increasing your risk level. I think for at least the initial sales you need to be more conservative than that and just say, ‘If I can get better than what I think that the average price has been over the last few years, and it covers my costs. I should take some of that action early on. So I can sleep a little better and feel a little better about how the farm is going as we go through the rest of the season.’”

He suggests that farmers with grain to sell, must understand their budget, and cost of production but should focus more closely on their margins as opposed to the price at which they sold their grain.

Fortenberry: “To a large extent, businesses that are successful other than agriculture don’t talk about price, they talk about margin. And so as we experience more and more about volatility that becomes more and more important as a business management practice.”