 Hello, this is Frayn Olson, crop economist and marketing specialist with NDSU Extension. This is the third of a three-part series discussing adjustments in the North Dakota soybean markets due to the Chinese tariffs on U.S. soybeans. The slide shows my contact information, both email as well as telephone numbers. So feel free to contact me if you have any questions or need some additional information. So this third session will really focus on marketing and storage strategies for you as a farm manager. So what can you as a farm manager do to adjust to these new market conditions during the harvest of 2018? The first is to try and avoid temporary or emergency storage for soybeans. Dr. Ken Halivang, also with NDSU Extension, has some excellent materials on grain storage and has recommendations for not only temperature levels but moisture levels to try and keep the grain in condition and high quality so you can have the most flexibility in marketing your crops. Now if the tariffs are reduced or removed, soybean futures market prices will rise and rise very quickly. However, basis levels will likely not. Once again, the reason for this is the timing of grain flows from North Dakota into the PNW markets. It's going to take several months, my estimate is approximately three months, for those flows of grain to become efficient again and it'll take a while to work through the backlog of soybeans that are currently in storage in the elevator system. So how do we market around this? What are some of the strategies we can put in place? Well the first is simply to sell the soybeans and accept the wide basis. So again if the tariffs go off, futures market prices will increase rapidly, the basis levels will not, if they reach levels that you're comfortable with, you can sell the cash grain and accept those price levels. Another alternative that can provide some flexibility is to consider hedging or selling a futures contract. In order to do this you will have to work with a broker and have a brokerage account set up. Again what we're assuming is that the futures market will overreact when the tariffs are either reduced or removed so we're going to have a nice rally in the futures market but it'll take a while for the basis to recover. So when the futures market increases you sell the futures contract at a particular price that you choose. Again what I'm recommending is that you would choose a contract in a futures month that's one possibly two contracts forward to allow your time some flexibility on timing. This also allows you to capture the carry in the market, receive a little bit higher price, it allows some time for the basis to recover. Now you may need to adjust this strategy a little bit if you have some short term cash flow needs. So when the basis does recover you can sell the cash beans, buy back the futures contract and again you'll be able to lock in a higher price. Now under this strategy there is the potential for margin calls but again margin calls will only occur if the futures price continues to increase after you purchase the contract. Another alternative that's very similar to hedging would be to consider using a futures fixed or hedge to arrive contract. Now this is the same contract it just goes by two different names. You sign this contract or it's a delivery contract with a local processor or local elevator but it is very nice and flexible because it allows you to choose or lock in the futures price at one point in time and the basis level at a separate point in time. So just like hedging I would recommend that you consider using a contract that's one, possibly two contracts into the future again it allows you to capture the carry in the market but also provides some time for the basis levels to recover. Once you choose the basis level later on this locks in the price, you're allowed to deliver and be paid for the grain that you've delivered. Another alternative would be to use a CCC loan on your soybeans. This does provide some flexibility. It provides a nine month window to allow prices to recover. It does provide some cash flow as you sign up for the loan. It does usually come at a lower interest rate than what was offered at your traditional lender. The one caution would be anytime you deal with the CCC loan make sure that you understand the commitments, you understand the paperwork. Also check with your FSA director to find out about the requirements for CCC loans and whether they're allowed to take a loan out on grain that's stored in a silage bag. If some counties allow this other counties do not. So again before you go in make sure that you understand what the rules are. So what about trying to develop a soybean marketing strategy when you don't have enough storage space? One possibility is to consider selling corn at harvest and storing the soybeans. Now the advantage of this would be corn basis levels are not expected to weaken or become more negative during harvest. They may improve later but again by selling the corn today you're locking the basis levels. You're not giving up a lot of opportunity for basis improvement because I don't think there'll be that much but it is something consider. Again if you sell the corn it does free up on farm storage space and it generates some cash flow immediately. Now one of the other things to consider is it may change harvest efficiency. I know that there are a lot of farmers that are set up to deliver grain or corn in particular directly from the field to on farm storage facilities. If you have to deliver to a remote elevator or a processor that delivery time may change your harvest efficiency especially for trucks or grain carts and or potential drying. So if you sold your cash grain but you still want to participate in potential market rallies what do you do? Well you do have two alternative choices one is to buy an option the other possibility is to buy a futures contract. Now I want to emphasize if you sell the cash grain and buy back a futures contract or sell cash grain and buy an option this is not hedging you're speculating all you've done is transferred speculating in the cash market to speculating in the futures market. Now if you buy a futures contract you are exposed to margin calls but margin calls will only occur if prices decrease so again keep that in mind. From an options perspective I just want to remind everybody options work best or you become more most pleased with an option strategy when you have a large price movement in a short period of time so if we get a very slow increase or slow rally in prices options may not be as favorable as you as you think they would be. The other thing as a reminder you can buy and sell options at any time they're very liquid instruments so if you buy an option and the option strategy is not working as effectively you'd like you can always get back out of that strategy at any time. Again be sure to work with your banker to make sure that you have a line of credit arranged either for the purchase of the option or potentially to finance margin calls if needed. Now another possibility then is to sell your cash corn at harvest store the soybeans and then use a delayed pricing contract for the corn. Now delayed pricing contracts for soybeans may be difficult to find but delayed pricing contracts for corn should be available at most elevators. Again there's going to be an incentive for the local elevator to keep that that harvest volume up and throughput through the elevator as high as possible. A DP contract or delayed pricing contract is on corn in particular is one of those ways that that can be accomplished. Now delayed pricing contracts should be considered a short term marketing strategy. Delayed pricing contracts are never intended to be long term strategy. What do I mean by short term? In my view DP contracts were best for two maybe three months so if you think there's going to be a price recovery in a very short period of time that would be an alternative strategy. You may be able to get some additional cash flow with a partial cash advance when you sign the delayed pricing contract. It does depend upon the policies of the particular elevator processor you're working with. You could possibly consider selling spring wheat and storing soybeans. Again this would be a little bit more challenging because you'd have to move the spring wheat out of storage to free up the additional space for soybeans. Now again the advantage is it does free up some on-farm storage. It generates some cash flow but again the timing of it right now this far into the harvest season may limit your ability to deliver spring wheat. So again there's a timing problem that may occur. If you do choose to use this strategy just like corn you can still sell the spring wheat. You can buy back an option. You can buy back a futures contract. Just like the corn example this is not hedging. All you've done is gone from speculating in the cash market to speculating in the futures market. Margin calls are possible but they'll only occur if prices decrease. Again options work best if there's a large price movement in a short period of time so if you buy an option that's what you'd like to see happen that's when you're going to be most pleased with the option strategy. And once again just as a reminder be sure to work with your banker or your lender to make sure that you have a line of credit that's been prearranged. Another strategy that can generate some cash flow would be to sell other crops not as impacted by the tariffs. One example would be drivable beans like pinto, navy or black beans. Now we have seen some softening in bean prices as we moved into harvest but the price drops have not been as severe as what we've seen in the oil seed market like soybeans and canola. What this suggests is that if the tariffs are removed that soybean prices and canola prices will likely increase but we may see very little price change in the drivable bean market. Another possibility would be to sell sunflower or flax. Again these prices have not softened as much as we've seen in the soybean and canola markets suggesting again if the tariffs were to go off that the sunflower and flax prices may not recover as much either. Selling pulse crops like philpi and lentil are less attractive than they were earlier in the season. We've seen some recent price declines we may have some better pricing opportunities later on as we get closer to spring's work but again you're taking the risk that the prices will stay and remain the same so this may be an alternative for you it really depends upon your strategy and your cash flow. Now selling these crops may or may not free up storage space but it does generate some cash flow which at times can be an important criteria. Another possibility is to take out CCC loans not only for soybeans but also for other program crops again it may or may not free up on farm storage space it does generate some cash flow and just as a reminder I would consider this an intermediate strategy it is a nine month loan the loan lasts for nine months after the date that you take up the loan the grain is used as collateral by the USDA loan rates are set by each county and so they do vary a little bit from county to county now this is a list of the national average loan rates if you notice soybeans at the national level is five dollars this is the average for the entire U.S. each county then is adjusted upward or downward a little bit depending upon location and there the the specific county that you live in I did look up and report the loan rates for Cass County just as an example for soybeans is four dollars and seventy four cents per bushel if you do want a reference to find out what the loan rate is for your county you can talk to your county director or you can also go to the website listed below and and look it up in reference to your specific county and finally I'd like to show you a marketing matrix that has been developed by Dr. John Ferris out of Michigan State University I've used this in several of my programs in the past I consider to be a very nice reference when you're trying to make decisions about marketing and choosing the correct marketing tool it asks two basic questions the first what do you think is going to happen to futures prices so if you believe that futures prices are going to move upward from this point in time as we move forward you'd look at the top two quadrants if you believe the futures markets will fall or drop as we move forward in time you'd look at the bottom two quadrants the next question is what do you think will happen to basis levels or that differential between the futures price and the cash price if you believe that the basis is going to strengthen or become less negative you look at the quadrants on the left-hand side if you believe that the basis will weaken or become more negative you look at the quadrants on the right-hand side and based on the answer of those two questions what do you think will happen to the futures price what do you think will happen to the basis you look at the proper quadrant and it'll describe the strategies that work best in that kind of market conditions so again I like to use this as a reference point as I start thinking about what different strategies and tools do I have in my toolbox to make marketing decisions under different marketing conditions this concludes the third of the three-part series discussing the adjustments in the North Dakota soybean markets due to the Chinese tariffs on US soybeans I hope you found the series valuable we will be providing weekly updates as more information becomes available so please be following the NDSU extension webpage as well as the North Dakota soybean council webpage for the additional information thank you very much