Put options pay off for Minnesota Grain Marketing Plus producer

     Tim Ennis, Director of the Grain Division for National Farmers, likes to share with producers a couple of his marketing touchstones. The first is the fact that historically, June, along with April and May, is one of the best time periods to sell grain.
     The second pointer is one that Eddie Kramer has taken full advantage of. Purchasing options during those same three months to protect against lower grain prices.
     Kramer, a grain producer from southeast Minnesota, between Winona and Rochester, made options work well in his operation with the help of Linda Reineke, grain marketing adviser for Iowa and Minnesota.
     "About a year, ago we bought a grain put. We spent about 30 cents a bushel on it and got a return of $2.50 on it, and that doesn't happen too often. That was the first put I'd used," Kramer said.
     "It seems like every spring I'm in the field getting the corn and beans in the ground, but I need to work just as hard at getting them sold," he added. The Minnesotan has sold corn and soybeans through the organization starting 40 years ago, a satisfied customer of Grain Marketing Plus.
     "This time of year, you don't know how many bushels you're going to get necessarily, and the put gives you a right to sell grain at a certain price on CBOT - Chicago Board of Trade. The cost of the put option depends on the price you want to protect," he explained.
     You don't have to buy puts, but if you do, you can tie in that price, without making a commitment that you're going to have to deliver so many bushels."
     When you buy a put, it's an opportunity to sell at a later date, locking in a specific price for a commodity, he said.
     Kramer, farming 240 acres, sets a good example of a small producer using all the marketing and risk management strategies available to him. He analyzed different marketing choices.
     He said he could "make a direct sale or a HTA contract, and tie in a futures price, but you don't know what the basis is. And when you do that you're committed to doing a certain number of bushels."
     "But with a put, you don't have a delivery commitment if you don't get a crop, but your price is protected if the market goes down," Kramer emphasized.
     "It's still better if the market goes up. If it goes higher, [National Farmers Grain Marketing Plus] will sell my grain at a higher price," he added.
     In the spring, it's sort of a crop scare as to whether or not farmers are all going to get crops in at a good time, Kramer said. "I'm watching that now - in Illinois and Indiana."
     In that case, Kramer would want to do another put this year. "It depends on whether they plant corn or soybeans yet, too, which way the market is going to go," he pointed out.
Options easy to do
     Given the opportunity, Kramer would "absolutely" do it again. He found the process of using a put option simple, because the Grain Marketing Plus professionals handle all the details. "It's very easy to do," he said.
     "Just talk to Linda Reineke [or the grain representative in your area] about what price you'd like to have, and if it gets in that vicinity, and looks like a good deal, then she can go ahead and make the sale or make the purchase with your permission. It's not too much work on the farmer's part."
Tips for producers
     Kramer said he'd recommend using puts to other producers. "He'd have to look at his cost of production. If you can get a price you can live with, try it. We'll never go broke if we can sell at a profit and are covering our expenses," he added.
     "Sometimes we get greedy, and keep putting off until the market gets a higher price and a higher price..We want to get a top dollar, and it starts going down, and then you start chasing it on the way down."
     If you can get a price you can live with, sell a portion of it," he said. "It's hard to guess the right time. Sell it in stages. Selling on the way up is better than trying to do it on the way down."
     Kramer forward contracts a portion of his crops prior to harvest using Marketing Plus and protects the price on the portion he doesn't forward contract using put options. Any bushels not forward contracted are sold using the Marketing Plus multiple sales strategy after harvest.
Farm profile
     Kramer loves farming. His farm lies on the edge of the Mississippi River Valley and the Whitewater River, with some hilly land requiring contours and strips, and some additional land that is more level and rolling.
     His kids, Steve Kramer, Terry Nelson and Joe Kreidermacher, help him farm at the busy times of harvest and planting, even though they have off-farm jobs. Kramer also has a cow-calf herd of 29 head, 12 each cows and calves, plus five yearling heifers.