Grain Marketing 202 with Angie Setzer - emotions and strategy
Part 2 of our Grain Marketing class is going to focus on emotion and a return to incremental marketing. The perfect price is always elusive and so is removing emotion no matter how hard you try. Angie Setzer spent years working on the co-op side of the ledger and continues to answer the question of ‘now what’ following harvest. Having a plan is key when trying to avoid tougher decisions in times of a cash crunch.
Transcript
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[Yeager] I'm Paul Yeager, Angie Setzer is one of our market analysts. She used to work at a co-op. Now she's in business for herself. But we'll talk about the - ‘what's the co-op thinking?’ What are folks like her thinking? What should you be thinking when it comes to marketing your grain? You've got this pile of grain. Now what? That's kind of the overarching theory here. This is part two. Part one was last week. So if you want to get caught up, go back to one, then come into two. We'll see you on the other side. Let's pick our conversation back up with Angie. Incremental sales you talk about you throw that term out is I have to think that there's quite a few out there. They have the most success selling more often than less.
[Setzer] Yeah. Yeah. Yeah I would say I mean there's a couple different ways that you can go about it from an incremental sales standpoint. And so when I say incremental sale it's as simple as taking into consideration what you expect your production to be. And that's easy. Everyone will tell me well I don't know what it's going to be. You're right. We don't, we have no idea. We have a general understanding. You know what you're production history looks like. You know what your yields typically are. You know, you know what, what is normal and what is better than, you know, what's 10% better than normal? What's 10% worse? What's the worst crop you've ever grown? And so a lot of times I'll say, take your a, take that worst crop you've ever grown and take that best crop you've ever grown. And you're going to land somewhere in the middle. So figure out, you know, in that regard, like what it is that you were thinking you're going to produce, what acres are you going to plant? What is your typical yield? You can take it down if you want to and be super conservative. But I like to break it up into 10% increments because I'm simple and it's easy math. You know, and so we take it into 10% increments if you want to be a bit more aggressive. I have growers that like to sell 20% increments. I have growers that like to stick with five. They get nervous. I'm okay with that, but it's broken into increments. And the idea is that you take 10% and you sell it at four bucks, let's say, and you have a targeted order end to take 10%, another 10% and sell it at 430. And so the idea is, as the market moves higher, you're selling a portion of your crop incrementally scale selling as we move up. And what I tell my growers is, if you start at $4 and you start at $4 and you need to to be moving this grain, you know what I mean? And we break it into 10% increments. You at $0.30, you have a $3 upside. You're going to sell $4 on the first sale, and you're going to sell $7 on the second, the last sale, you know. And so those are the things to be thinking of when it comes to putting your sales in place. And one of the things that I tend to always see, or not always, but tend to see with my growers, right, is once we start making these sales, once we get to where we sell that $4, we're all excited about it because that was our first target. And then we get the 430, and we're not quite as excited about that because we remember the four, and then we get to 460, and then all we can think about is the four. And when it comes time to sell the 490, we stop and then we watch you go to 520 and then it goes to 550, and then it goes to 580. And we wait and we ask, should we do some more and we don't do anything. Then it starts to fall and we think, well, if it gets back to 580, we'll sell some more. No, stick with your incremental selling. If something changes in the middle and you want to widen those, the spread and you go from a 30 cent to a 50 cent in corn or something like that, fine. But don't stop and don't get to where you're thinking, I have to sell. I produce 100,000. I have to sell 75 tomorrow. That's not what you want to do that to me, that's where people end up with regret. That's how emotion gets paid into the whole entire deal. And that's where we tend to go wrong.
[Yeager] You know, the emotional side of that, we, we talk about, and we see it, it is such, I worked my tail off on that crop. I'm not letting it go out the door. At a certain point, I think you and I have talked the bushel baby. What's that?
[Setzer] It's the bushel babies? Yes. You spent nine months pouring your blood, sweat and tears into this crop. You're not just going to send it off to, you know, like the party school of the West. Like you're, you know, only. So you wanted to go to Harvard, you know, like, if you sell your crop for too cheap, like it's going to know and it's going to hate you, it's not it's not going to know. It's not going to hate you.
[Yeager] All right. What do I need to do if are you talking more cash or futures here on selling incrementally.
[Setzer] Yeah I am, whichever you prefer. Honestly. Like, I have growers that, you know, are more comfortable with cash. They like knowing what they're getting, you know, they just don't want to screw around with worrying about having to roll or put basis. You know, what if basis gets worse and you know, this, that and the other thing and that's totally fine. You don't have to, reinvent the wheel when it comes to your marketing strategy and do things that you're uncomfortable with, especially if you're just getting comfortable making incremental sales. Last thing you need to do is get comfortable making notes on top of another type of contract that you may or may not like. To me, when it comes to far deferred, like talking about December 25th, November 25th, July 25th, wheat or something like that. I prefer to do futures only, whether that's, you know, positioning in your hedge account or, you know, using an HCA. I like ECAs locally, especially for the first half of a growers production, just simply because it's, you know, you don't need to tie up the money into your hedge account necessarily, unless you like to. I mean, there's nothing wrong with that. To each their own. but I do think the, you know, kind of knowing what you're comfortable with and sticking with that, it doesn't have to be one way or another to be right. You know, the biggest thing is just making sure that you're incrementally selling in a way that you're comfortable with and working to capture values that work for your farm emotion.
[Yeager] You talked a moment ago about emotion. The bushel babies, I think is what is that what you said?
[Setzer] Yeah, that's what I said. Yep.
[Yeager] I don't know that term. That's a new one.
[Setzer] I'm sorry. It's one of mine. It's a, you know, one of those random ag terms that you'll get.
[Yeager] But I do get the fact, I've heard of the people that have a different person in the business, somebody who might not be in the field day to day doing the grain marketing. You know, it might be a spouse who's not related, run on the tractor, but they might be. Yeah, it is the emotion side of things.
[Yeager] And that whole I have to get another nickel. I have to get another dime. I have to get another $0.50. Whatever it is that you were talking about the increments there. Yeah. Help me through this understanding and navigating the emotions side of things.
[Setzer] Well, I think the biggest thing is, you know, I spent the first half of my career kind of parroting, men older than I who were like, take the emotion out of marketing. And I was like, don't stray. No emotion. it's wrong. You're not gonna you're never going to take emotion marketing. All it marketing is pure emotion. Like, look at the funds. Look at the way the market moves. Like that's what's the fun part about it is like it's there's passion in there and there's some excitement and whatever. And we love what we do and yada yada yada. And so first and foremost, like, I'm not going to tell you to remove the emotion, but I am going to tell you to start to think about where the emotion has caused you problems over the years.Like is it that you get caught up in, thinking that the market has to move higher and you stop selling? Is it that you think, well, gosh, I'm an idiot, why would I do that? I can't believe I sold 20% of my crop. $0.30 below where we are right now. I'm going to wait because I need to prove to someone that I'm smart. I don't know what it is that drives our desire. I mean, I had a grower one time sit in my office in 2012. Corn was $8.50 cash at the time, and my boss at the time was sitting, standing next to me and we were talking to him. And I'll never forget he took a $10 bill out of his wallet and he said, is it $10 that you want for your corn? I'll give you a $10 bill right now. Go get me 56 pounds, and you can tell everyone that you got $10 for your corn. And so sometimes what it is, is that you just get so caught up in this idea of, like, if I don't sell it for the absolute peak, I'm going to be the one that's having the auction and everyone's going to know and they're going to laugh at me. They're not. They have no idea. First of all, first and foremost, everyone is so much engrossed in trying to figure out their own thing. They don't care about what you're doing for the most part, unless they're at the coffee shop or whatever. And in that case, you don't care. you know, but from an overall standpoint, how do you remove the emotion? You don't, but you figure out how to harness it. You figure out how it works for you to your benefit, how you went, the times to listen to your gut, the times to ignore your gut, and the times to reach out to someone else who can help you to recognize where we're at. Sometimes you don't know. Like for me, I can tell at times where I'm like, okay, Angie, you're being a little crazy. Like, don't, don't listen to yourself right now. We don't need to panic. But then there's other times where it's like, okay, that's probably the right thing. That's probably the smart move. And I'm going to go ahead and talk to my growers about adding that into their plan.
[Yeager] There's an old phrase that I use, and it's unfortunately falling to the side because it's been longer and longer since he's been on the show. But wild Hackney used to say, yeah, it's hard to lose money taking a profit, but there are plenty of people who have bushels that are not going to make it a profit unless we get back to that $10 or $8 or seven. What do I do?
[Setzer] Well it depends. I mean obviously there are and I hate to say that because it sounds like I'm phoning it in, but you have to take into consideration it goes back to assessing your situation. you know, do you have time, do you have the ability to wait. you know, obviously if you've got the grain in the bin and you can tap into like a cyclone or something of that nature, and it'll help to cover the bills that you have coming in and you have the ability to wait. Then you can let's wait. Let's see what happens. Time to a certain extent on your side. Right now, we have a whole year ahead of us. if you're in a situation where you can't wait, though, which a lot of people will be, there's going to be a lot of cash flow needs that are going to have to be covered. There's a lot of banking headaches out there and issues that are going to arise likely here over the next couple few months. And so if you're in a situation, it goes right back to what we talked about before. If you're in a situation where you know you have a deadline, don't you can't sit and just push and push and push until you're the day before that deadline at that point, that's when you get and take into consideration that locking in the floor if you want to, you know, still stay in party. You can for an admission fee. You just have to figure out what that admission fee is that you feel comfortable paying. you know, but when it comes down to it, if you don't want to take anything out of your pocket, you have it is sitting on the farm, and you don't have anyone knocking on your door telling you that you have to pay up you times on your side. Go ahead and do whatever it is that you think you want to do. Throw out your targeted orders and wait. But if you're in a situation where you don't have that time, then you have to start to take into consideration that you may have to to pull the trigger to a certain extent, or you may have to be having these conversations on how you get more time. But, you know, there are options out there. Like I said, the CTC loan, you know, moving grain on a basis contract and taking an advance depending on where you are and if your local elevator will let you do that. you know, there's a lot of ways that you can kind of, help to cover your cash flow needs without committing a sale. But also recognize that there's a lot of risk in doing that. And, you know, when it comes down to it, you have to take into consideration what it is you're trying to accomplish and what you're willing to, to, to risk in doing it. and then make the decision that fits your farm.
[Yeager] There are some who have not sold, depending on when you watch this, there could be people with two years of crop, maybe even partial left over of a third some way, somehow they're absolutely waiting for a right moment. They're in a different position than you. And that's probably a different discussion at the coffee shop or the diner, if there is such a thing in your community, sometimes it's the coffee and the diner at the same time. Anyway, those people will just ache and hold and ache and hold and never sell. Is there help for them?
[Setzer] No, I mean maybe, but I'm, I'm not here to do like, you know, like there comes a point in time, as a woman you have to know when someone's beyond help. And so there are times where if you're, you know, if you're able to then. Yeah. Giddy up, I don't mind. I mean, I, I, I've watched people like I was one of the folks that was super against the person in 2020 that was like, hold on to 11 billion crop years in a row or whatever ended up being the right thing. You know, I never know. And I'm not going to, to criticize, you know, if you have the ability to do it. But I will say one of the things to keep in mind that a lot of people don't realize, you know, farmers are great at avoiding or ignoring, underlying costs, right? Like freight when they truck it, it's free. When they're holding on to it, it's free. And that's not the case. Taking that money, keeping that money out of your pocket. There's a cost associated with keeping it in the bin. It's about $0.05 per bushel per month for corn. You know, you could say four, but 6 or $0.07 on wheat, you know, around $0.08 or so on beans, give or take, depending. You know, when we could sit down and, do the math on that, but I'll, I'll save you the board. but, you know, you have to take into consideration that it's not free to sit on it either. but if you are one of those folks that's just going to roll the dice and keep adding space and doing all those things, then God bless you. I am up for adoption and would love to come and live on your farm.
[Yeager] Well, I know of one grower in particular who talks there. Other people with that grower not even going to say if it's a he or she.
[Setzer] But yeah. Oh, I know, I know, it happens and I'm pumped. Yeah, I love to see it. Keep that grain out of the pipeline. Well the market's telling you to keep it out of the pipeline.
[Yeager] Well and that's the discussion that we had in say I think it was late summer. I think you and I talked about doing something different. But the markets back to signals. Right. The market was telling us, yeah, needs to be that big door needs to open. Yeah. This is the time to send it out. Now we've kind of discussed that matter already. But again, the cynic in me will say, yeah, that's just what they want to do because you Angie or you Tom or you Sue are going to make money off of me because you're telling me to sell because of you're in cahoots with whatever company.
[Setzer] So, yeah. No. Well, yes, there is, I, I will say that I have had several, growers that, you know, have had some real anger about the market and the market structure and how unfair the market is that, you know, they've kind of recognized. Wait a minute. You know, it's a creature. It's a living, breathing thing. And it it doesn't really know I, Joe Farmer individual exist. It doesn't care about every farmer in the nicest way. it's not out to get you. The your end user is not out to get you. Your elevator's not out to get you. We're all out here just to try to make money. Now, is there advice that sometimes is given that is not great or, you know, is really kind of just out there to generate commission or to, to generate trade or to get bushels moving? Yeah, yeah. That's part of the reason that I'm so adamant or so passionate or so loudmouthed about some of the things that I'm, I'm so loudmouthed about, and I'm okay with that. you know, I, I do think that there are things out there that are, set up to, to take advantage of the ignorance of the farmer. And ignorance is not the same as stupidity. Ignorance is a lack of knowledge, not the unwillingness to learn. Right? Like it's just something you don't know everything. Just because you're a farmer doesn't mean you know everything about the grain market. Just because you are a Merchandizer doesn't mean you know everything about farming. And so I think we all need to understand we have our own rules. But, you know, from an overall standpoint, most people in this industry have your, success in, in mind or should for me personally, like my growers, like if I don't do well for them, they're not going to sign back up next year like that. That's silly. Why would they write me a check year after year if I'm not providing a service that's of use to them? But I do think it's important to like, go back to the the first conversation or this the start of the conversation as a whole and recognize that the the demand side of this market, the end users, your buyers, all of that, they're not out to get you. They're not evil, you know, they're not necessarily out to do a bunch of nefarious things. But, you know, it's it's good for you to be educated, to have the communication open and things like that. So if someone does come at you a little sideways, you can smell it right away, like it doesn't pass the test. You know what's happening?
[Yeager] I go back to, you know, a lot of things, not you.
[Setzer] oh. Thank you. Yeah. We, you typically,
[Yeager] I think, you know, a lot of things I will get, I see that South America needs rain. I see China is going to maybe buy, I see Ukraine, and then something happens. News breaks, it moves on the wire, and the market doesn't respond. There's sometimes an answer of, oh, it's already baked in or oh, we didn't see that. How do I think I'm informed? And trying to take advantage of what opportunities are there in the market doesn't respond the way I think.
[Setzer] Yeah, that's frustrating. That is frustrating. you know, I, I did a conversation, I had a conversation with a few different folks about what priced in means. and so I would say that it's easy to recognize, you know, whether or not something's priced in by a couple different things. First off, is it something that you've heard about consistent for an extended period of time? Right. Like, so we knew the risk of Trump winning the election would be negative to grains potentially, and a few other things. and so once the election happened, we had that little knee jerk reaction that I was expecting lower. But then we closed higher by the end of the day because the risk to trade was priced in. We were already down to 980 futures or we tested nine. You know, we tested 955 the week prior or whatever. you know, and so around the election we had that's a great example of, of, you know, something being priced in, the cash market, we'd seen soybeans, you know, firm up a bit. The cash market, it indicated that, perhaps the crop was a bit smaller. We got confirmation from the USDA in November. The market tried to rally and didn't really do much. You know, the smaller crop, to a certain extent, had been priced in because we've moved off our low and the spreads had firmed. You know, there's certain things that you have to be able to to know that, okay, if it's confirmed, it's probably not going to be bullish, you know, by the rumor sell the fact these types of things, like if we're bullish because we expect something to happen, the likelihood of seeing a follow through on bullishness once it's confirmed it's less because people are buying something. I have a friend, in the business that trades in options a lot of times and he refers to it as edge traders in commodities, you know, you're outside speculators or whatever. They're only going to trade something that they think no one else really knows is a thing. Like it's very rare to see people aggressively come in and buy a known because the known is already traded. We've been, you know, like and so that's one of the things there where you have to kind of recognize. How long has this story been circulating. Has the market been actively trading it for an extended period of time? And is this news is the confirmation of this something that no one was expecting? Is it a surprise? Is it not. And that's a great way to tell if something's priced in.
[Yeager] How do I help myself, though, thinking that the market should have priced it this way? But the surprise is not the way I think it was going to go. Does that make sense?
[Setzer] I think the best way to do that is to think of the market as. And if you don't have children, this might be hard, but think of it as your four year old child. It relies upon you and a lot of things and a lot of, you know, outside circumstances to really influence its mood and whether or not it's agreeable or what have you. But it is still independent. It is still going to do what it wants. It is still going to, you know, take into you consider certain things and spew them back out at you and, and this, that and the other thing, I mean, really, when it comes down to it, the market is, you know, the market is, it's its own thing. It's going to do what it wants. And for us to think that we, you know, no or that we have, one push one way or another or something like that, I don't know, I just you can't get mad about something that you can't control. I guess maybe that's the best way. So I don't have to go deep into this four year old, you know, like, analogy. But when it comes down to it, getting upset about something that you can't control is just a waste of time and effort and energy. So why not use that effort, energy and time on what does this mean to me? How does this change what I need to be doing, and does it impact what I what decisions or what targets I have out currently? You know, goes back to making, changing your opinion when the situation changes.
[Yeager] Well, I was going to circle back and land and say, now we're back to. Maybe that's why incremental sales work.
[Setzer] Yes. Because you don't know. Yes.
[Yeager] I can exactly argue about why the Cowboys are terrible, but there's nothing I can do about it. Exactly what name? The sports team name, whatever. But I, as a person who is influenced or. I'm sorry, impacted by the market. I get upset at people who think they can influence a market that they shouldn't have any information about. Or I get mad at the speculator who comes in and sells off what the position they had, and all of a sudden the bottom falls.
[Setzer] Yeah.
[Yeager] But I also have to remember, I benefit when that speculator comes into the market and puts money in. Yes. And drives things up.
[Setzer] Yeah. We benefit from it. Yeah. The liquidity if we think of it this way too, from a speculator standpoint, not to get on a speculator soapbox, but look at your ability to hedge risk in the fertilizer side of the world. And you might have some folks that are trading fertilizer contracts. They're going to be real big mad about me saying this. But the reality is your counterparty, when trying to hedge fertilizer, is your supplier, plain and simple. The person that's going to take the opposing side of that transaction is CF is Koch is whatever. Like that. That is what it is. Imagine if in the grain market, every time you wanted to go and hedge, the only person on the other side was a feeder, was an ADM and Andersons and LDC. You know what I mean? Like one of the big AG people, like if you think things stink now, wait until you don't have folks in there that are like, hey, wait a minute, I think corn should rally $0.50 because you suddenly remove your ability to make trades. The liquidity is what we need. And I know it's frustrating and it stinks and it's not fun, especially when it's down. But no one complained when the funds were 400,000 pounds. Well, people did complain because the feeders and everything like that, but like, well, it's complaining no matter what. But you know, farmers, we weren't complaining when they were 400,000 contracts long. You know, we were rooting for them to go to 600,000 or whatever. Like, you have to remember, the liquidity is important. And as frustrating as it is when the market doesn't go your way, making plans, being a decisive market, or knowing what you need to be doing ahead of time so you can take the opportunity when it's presenting itself, because it might only be there for a day. You don't need to worry about what happens with speculators, and if the market goes against you or what have you, because you're making the decisions that fit, you know, the needs of your operation.
[Yeager] I can't worry, but I probably should, but not internalize it. Is that. Did I get that right?
[Setzer] I think it's a hard, like I said, marketing is impossible because you're going to stress about it, and I'm going to tell you not to. but you're gonna and I'm gonna and we're both going to and it's okay. But, you know, when it comes down to it, to, to waste that time and energy, like I said, arguing over something that you will never change or control. I think you could do some other better things with your time. Like pick up a hobby, start a puzzle.
[Yeager] I'm almost done with my puzzle, but that's another story. That's just my phone at night. okay. I'm looking at some of the terms that we were going to talk about. Angie, as we wrap up in the final moments of this 201 and 202 class, what are the other things that we need to be aware of, or what's going to be on the quiz?
[Setzer] Yeah, I, I mean, I think the biggest thing is, not getting caught up in, you know, all of the things that we tend to get caught up in. And I know that's like a broad brush statement, but I think so many times farmers think they need to be experts in all things marketing. And if they aren't, then they can't make smart marketing decisions. And that's not the case. you know, I would say that that's one of the biggest things, like I'll get growers that are like, oh, I don't know what any of that means, who you know. And it's like, no, no, no, no, no. You can learn it like it. It's super simple. And I can show you. No, we'll show you. Let's see. you know, and so I would say one of the biggest things like, don't think that you can't get this pin down to where it's never you're never going to nail it, like I said. But are you going to feel better about the decisions that you're making, or are you going to be able to to feel like you're making profitable sales and smart moves and things like that? Yeah. You know, the other thing that I would say is, is do not get caught up with thinking that you have to become an options expert. I think one of the biggest things that I watch farmers do is they think that they need to learn how to trade puts and calls, and they completely ignore how to negotiate basis or how spreads impact their contracts, or whether they are selling when they need to versus when it makes sense. And so I would, would really recommend from an overall standpoint is when you're assessing where you stand now because a lot of you got done with harvest a lot earlier than normal. So when you're assessing where you stand now, where you're taking that mark to market, take an opportunity to kind of assess where you feel you stand from a marketing or where you think you could improve, you know, and who could help you do that, I think is one of the most important things. There's absolutely nothing wrong, with working to get to continue to grow and improve. And, and I think that it's going to be the difference going forward, you know, and who stays and and who goes and, and all of that, you know, being able to to merchandise your cash, especially if you're building space, being able to merchandise your cash grain is, is going to be huge.
[Yeager] Speaking of space, that one thing we kind of talked briefly on was the bin. It's too late to build a bin now for the crop that's in. But where does that factor into. Well, I'll just store another name the size of bin that I'd like to buy. I mean, that's one of those I think you said, God bless those that can store and hold on to that for years and years, but that's a strategy that's worked for many, many people.
[Setzer] No. Yeah. Store and ignore. I think they have t-shirts. you know I, I it is a strategy that works. And I will say this, and it's, this isn't a me line. I think someone else is. I mean, I know other people have said it long before, but no is a decision. You don't have to do something every day. You know, you can buy, sell or hold, and I have no problem in doing that. As we work to assess what we've got going on, you know, and as a matter of fact, for a lot of my growers right now, and that's what we're doing, we're just sitting tight. We're assessing the situation. We're figuring out what it is that we need to be doing. We're not panicking. We're not making knee jerk, you know, reactionary sort of of moves. but we have targets in we have our first 2 or 3 increments and next from where we want to be trading and, and, and that's what we're doing. And I think that's the thing you can always do nothing. That's fine. but just make sure the, you know, you're doing nothing with purpose. I guess at this point, you're doing nothing with an intention to do something when the market provides you an opportunity to do it. Just doing nothing for the sake of doing nothing is not the same.
[Yeager] Doing nothing with purpose. Here lies Angie Setzer. Okay, that's me.
[Setzer] Yeah, it's the working title to my memoir. At this point.
[Yeager] Class dismissed. Angie. Thank you.
[Setzer] Oh. Thank you. I love talking about this stuff. If you couldn't tell. But luckily, no one's getting charged by the word, so we've got that going for you.
[Yeager] For both of us. Yeah.
[Setzer] Yeah.
[Yeager] All right. Angie, thank you.
[Setzer] Thank you.
[Yeager] Again. My thanks to Angie Setzer. Always appreciate the time. If you are looking for market information about the TV show, sign up for our newsletter that comes out every Monday. New podcasts come out every Tuesday. We'll see you next time. Bye bye.