The fifth component of the marketing plan is to know what pricing alternatives are available, and which ones you feel comfortable using. Producers have a wide array of pricing tools in their arsenal, yet many are content to sell their commodity at harvest or shortly thereafter. Producers need to explore, learn, and use alternatives in the future. A few examples of available tools are forward contracts, hedging with futures and options, minimum price contracts, basis contracts, cooperative pools, harvest time cash sales, and storage. Each pricing alternative has advantages and disadvantages, and no one alternative is the best year after year.
Many producers are reluctant to forward contract because of production uncertainties.
Once you have sold, there is risk that prices will move higher. Buying a put option allows the producer to forward price his commodity prior to planting and still have upside price potential, but premiums are sometimes expensive. One of the biggest advantages of diversifying by using several of the alternatives is that it allows you to spread your sales out, and gives you a much longer marketing horizon over which to look for profitable pricing opportunities. Price and Date Objectives. Probably the most difficult, yet most important, component of the marketing plan is determining a way to combine all of your information into an overall strategy.