Farming is a good, noble and moral occupation. It is surprising how often not-selling-grain is blamed on “greed” in conversations. We have all seen the “fear” and “greed” charts presented at marketing meetings showing the cycle of emotions.
Farmers themselves often confess to me, with a smile, “greed” for not selling. I disagree.
The more I listen, study and observe decisions (and nondecisions) with growers: it seems farmers are trying to minimize regret by passing on a crop sale, not being greedy.
Regret is emotional pain after making a decision that appears to go the wrong way.
Regret is taking responsibility for a loss or missing out on a gain.
In crop marketing, regret can be felt by selling too soon or not selling at all. Crop marketing is a continuous undertaking and past decisions can play a role in future sales.
Regret can stick with a person and affect future marketing practices. It is human nature to avoid pain and we try to minimize the emotional pain of regret whenever possible.
Mental Crop Years
Daniel Kahneman states that we hold our money in different accounts, which are sometimes physical and sometimes mental (Kahneman 342).
Allow me explain mental accounts from a personal experience. My wife and I hope to grow our family by adopting a child. We are fortunate to save a little money in a bank account to pay for an adoption. Recently, we had a conversation about spending some of the savings on something else. It felt very uncomfortable to talk about spending the adoption money. We did not spend the savings and are still awaiting an adoption however we discovered a mental account.
“Negotiations over a shrinking pie are especially difficult… People tend to be much more easy going when they bargain over an expanding pie (304).”
When a farmer produces 100,000 bushels of corn in one crop year and sells 10,000 bushels, the pie shrinks to 90,000 bushels. What about the folks who say, “a farmer is always long grain until he retires?”
Even though a farmer is always long grain he still may hold each crop year in a mental account or an individual pie. As the pie gets smaller the decisions get harder.
Often opportunity is missed when decisions do not get made at all. It seems when more of the pie is sold the next decision to sell becomes more difficult to make due to mental accounting.
Each crop year seems to be held in a mental account.
Minimizing Regret and Mental Accounting
Use the mindsets below to help eliminate regret and mental accounting on the farm.
Regret looks back, opportunity is now. My first big trade as merchandiser at an ethanol plant was trading a month’s supply of product to a large poultry integrator. A day later, I felt I made the wrong decision and asked a more experienced merchandiser what he thought of the sale. He didn’t even look at me, he said, “trade and move on.”
Opportunity is now, don’t look back, trade and move on.
Imagine the worst-case scenario before a decision. Anticipate regret before a decision and remember the market always changes (up or down) after a decision is made. Kahneman teaches when we anticipate regret before a decision we are likely to experience less emotional pain when we look back (352).
When marketing grain in the western corn belt, drought is always on our mind (merchant and farmer). There are not many atheists living off of dryland corn country. We pray for rain out here. We almost always discuss drought scenarios when we sit down and plan new crop marketing.
Borrowing best practices from other industries is a great idea. Western cattle ranchers in arid western states make written drought contingency plans. They make an objective plan for when a drought hits. They plan what livestock gets sold first, how much hay to carry over and how to manage their rangeland to keep the ranch alive in drought years. The plan takes some emotion out of a bad situation.
There is a great video of a South Dakota rancher living through a drought. (The entire video is worth watching. Start at the 3:25 mark to hear only about the drought contingency plan (Video).
Writing down different yield and price scenarios and using tools like Harvest Profit help to minimize emotions on crop marketing decisions (click here for a 14-day free trial).
The farm is an expanding pie. View a whole farm as an expanding pie: over a career and generations This comprehensive view closes the mental crop years and focuses on the entire farm over time.
Keep in mind the Rule of 72, if a farm returns 8% on equity each year, the balance sheet equity will double in 9 years. At 10% its 7 years. At 20% equity doubles in 3.6 years. How many times can a farm double it’s equity in 30 crop years? How many times can a family of five generations double their equity over 100 years? Talk about an expanding pie.
Selling at a profit is the building block of growing equity: the key to sustaining and growing the farm.
A few last points. On the flip side, each individual crop should be marketed to maximize farm returns. Crop marketing and grain merchandising are cumulative skills: mistakes and regrets are part of the learning curve of a mature decision maker. Time in the saddle is the best teacher.
There is no regret in growing equity, stewarding the land and selling at a profit, it is just difficult in practice.
Crop marketing will always be difficult because of the dynamics of ever-changing markets, technologies and weather. There are no silver bullets: the closest thing to it is the comprehensive-diversified approach. Markets are a mirror or proxy of human behavior and interactions. Let’s face it, humans are not simple, humans are dynamic, thus are markets.
Harvest Profit’s software is one of the best tools to equip a farmer to make sound business decisions. Invest your time in a 14-day free trial to see if it’s a fit for your farm: https://www.harvestprofit.com/sign_up/freetrial.
Follow me on Twitter @cullenjwilson.
Cullen is passionate about all things grain marketing. He has a genuine appreciation for the challenges farmers have marketing their crop and has worked closely with 100's of farmers in helping them develop and execute farm-specific grain marketing plans. His hometown is Plankinton, SD. He graduated from SDSU with an economics degree in 2005. After graduation, Cullen spent seven years running a small service business near Garretson, SD as a farrier. Cullen started in the grain industry with an ethanol company in 2013 as a DDG merchandiser selling DDGs for eight ethanol plants in the eastern corn belt. Cullen joined the DPAC team in April of 2015. Cullen grew up in a family involved in the Ag construction business and a west-river cow calf operation. Cullen enjoys serving the Ag community.
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