PRACTICAL CONSIDERATIONS WHEN PRICING YOUR CROPS

Strategic Marketing Resource

Diane Hanekamp

CONSIDERATION #1

Know your own individual marketing objectives, put into a written sales plan.

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Acres 3,500 Acres 3,500 Total Acres 7,000Yield 172 Yield 48 Weighted Avg Combined Yield 110Bushels 602,000 Bushels 168,000 Total Bushels 770,000

Expense Total Per Acre Total Per Acre Combined Totals Per Acre

Cash Rent 717,500$ 205.00$ 717,500$ 205.00$ 1,435,000$ 205.00$

Seed 425,000$ 121.43$ 280,000$ 80.00$ 705,000$ 100.71$

Nitrogen 630,000$ 180.00$ -$ -$ 630,000$ 90.00$

Fertilizer 227,500$ 65.00$ 122,500$ 35.00$ 350,000$ 50.00$

Insecticide 32,000$ 9.14$ 22,000$ 6.29$ 54,000$ 7.71$

Fungicide 38,000$ 10.86$ 7,200$ 2.06$ 45,200$ 6.46$

Crop Insurance 175,000$ 50.00$ 122,500$ 35.00$ 297,500$ 42.50$

Total Direct Costs 641.43$ 3.73$ 363.34$ 7.57$ 1,271,700$ 502.39

Machinery 300,000$ 85.71$ 300,000$ 85.71$ 600,000$ 85.71$ Repairs 22,000$ 6.29$ 22,000$ 6.29$ 44,000$ 6.29$

Fuel 78,020$ 22.29$ 62,000$ 17.71$ 140,020$ 20.00$ Depreciation 98,000$ 28.00$ 98,000$ 28.00$ 196,000$ 28.00$

Hired Labor 58,500$ 16.71$ 22,480$ 6.42$ 80,980$ 11.57$ Drying 44,000$ 12.57$ -$ -$ 44,000$ 6.29$ Storage -$ -$ -$ -$ -$ -$ Utilities 5,775$ 1.65$ 5,775$ 1.65$ 11,550$ 1.65$ Interest 33,325$ 9.52$ 33,325$ 9.52$ 66,650$ 9.52$

Family Living 48,000$ 13.71$ 32,500$ 9.29$ 80,500$ 11.50$ G & A Expense 30,000$ 8.57$ 30,000$ 8.57$ 60,000$ 8.57$

Operating Interest 53,725$ 15.35$ 53,725$ 15.35$ 107,450$ 15.35$ Long Term Debt 40,297$ 11.51$ 40,297$ 11.51$ 80,594$ 11.51$

Asset Growth & Risk 50,000$ 14.29$ 50,000$ 14.29$ 100,000$ 14.29$ Hedge Expense -$ -$ -$ -$ -$ -$

Other -$ -$ -$ -$ -$ -$ Other -$ -$ -$ -$ -$ -$ Other -$ -$ -$ -$ -$ -$ Other -$ -$ -$ -$ -$ -$

Total Non-Direct Costs 246.18$ 1.43$ 214.31$ 4.46$ 1,611,744$ 230.25$

Profit Goal 35,000$ 10.00$ 0.06$ 35,000$ 10.00$ 0.21$ 70,000$ 10.00$

Government Payments 61,250$ 17.50$ 36,075$ 10.31$ 97,325$ Crop Ins Payment -$ -$ -$

Grain Premiums 200,000$ 57.14$ 0.33$ 150,000$ 42.86$ 0.89$ 350,000$

Cost of Production 822.97$ 4.78$ COP 534.49$ 11.14$ Combined COP 1,357.46$

Necessary Revenue 2,880,392$ 1,870,727$ 4,751,119$

Big Sky Farms2014 Break Even - Projections

2014 Corn 2014 Beans Doublecheck Totals per acre

RISK DISCLOSURE: This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FamilyFarms Group assumes no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FamilyFarms Group.

CONSIDERATION #2

Pricing grain that must move at Harvest because of on-farm storage deficits

33%

CORN SEASONALDECEMBER FUTURES

33%

SOYBEAN SEASONALNOVEMBER FUTURES

CONSIDERATION #3

Opportunities to mitigate storage deficits

&Opportunities to add value to

stored grain

STORAGE DEFICITS

• Average US on-farm storage is 45% to 55% of average annual crop production

• For many producers, some volume of Harvest Delivery must occur, no matter the price

CONSIDERATION #4

Negotiation of advantageous scale of discounts

GRAIN DISCOUNT SCHEDULES

Examples of how small changes to the Moisture Discount can be to your advantage:Either a higher allowable moisture at no discount (example: 15.5% allowed instead of 15%)

or

Easier per-bushel discount for moisture above allowable limit

(example: $.05 per 1/2% instead of standard $.075 per 1/2%)

or

Easier shrink and drying assessments

(example: 1.4% shrink per % above allowed moisture, assessed on 1/10% increments plus $.01 drying fee per %)

or

Averaging each day's loads and assessing one discount on all

(knocks out the highs and brings value to the loads you deliver below the allowable moisture)

CONSIDERATION #5

Delivery proceeds andcash flow:

Match revenues with cash flow needs

CONSIDERATION #6

Maximizing basis(or at least not pricing during

seasonal basis lows)

KNOW AND CHART YOUR BASIS

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RECAP.

BE MINDFUL OF

Individual Breakevens

Storage Capacity

Premium Opportunities

Delivery Points & Policies

Cash Flow Needs

Typical Sales Contract Amounts

Maximizing Basis

LAST WORD.

ASPECTS OF WORKING ON YOUR OWN

Review/Update plan regularly (2x Month)

Communicate plan to partners/financial staff

Become comfortable with the idea of making decisions with incomplete data

The benefit of hindsight does not mean a decision was incorrect In fact, hindsight can help you be aware of when to adjust

Beware of “paralysis by analysis” & “multiple market opinion handcuffs”

It’s OK to be wrong, it’s NOT OK to stay wrong!

IT’S ALWAYS GOOD TO HAVE 2 SETS OF EYES

You never know what you’ll miss!

THANK YOUHere’s to a fine 2014!

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