“How much of the crop did your plan say to sell before planting, and how much did you sell?” A lender asks that at the end of the year, and an answer from memory settles nothing. The decision is how to judge a year of sales: against the written selling plan, not against the best price of the year. Judging by feel costs money, because the tons that land in the wrong portion of the plan (a share of the crop set to sell by a date) sell at different prices. On a crop of 1,000 short tons, 10 percent is 100 tons, a $3,000 swing at the $30 a ton that separates the best and worst portion prices in the example below. So once a year, put the share sold in each portion beside the share the plan set, on a one-page sheet.
What goes on each row of the sales sheet?
One row per sale that has settled, meaning the money has reached the farm. Fill it from settlement sheets (the statement a buyer sends with the weight, the price and the deductions) and from bank statements, not from memory. The plan’s portions come from a written selling plan; without one, the rows and the average price still work, and that average becomes the first figure a plan can be built on.
| Column | What goes in it |
|---|---|
| Date | The date the sale settled, not the date it was agreed |
| Volume and unit | The quantity that left, in the unit the buyer paid on |
| Net price per unit | The price on the settlement sheet, after deductions |
| Buyer | Who paid, so each buyer or channel can be totaled separately |
| Plan portion | Which portion of the written plan the sale belongs to |
| Who recommended | The broker, cooperative or adviser who recommended that sale, or a dash if no one did |
| Who decided | The one person with the final word to sell, who signs the line |
Every sale has two hands, so the last two columns name who recommended it and who decided. On the phone the two blur: the broker says sell, someone says yes, the truck leaves, and a year later nobody can say who decided.
A contract that has not settled stays off this sheet. Grain sold forward and not yet delivered, or delivered with the price still open, goes on a separate list until the money arrives; the volume already priced covers that list. Mixing this sheet with that list is a common way for the sold share to come out wrong, and the error usually runs in the flattering direction.
How do you work out the price received and the gap in each portion?
Multiply the volume of each settled sale by its price, add the results and divide by the total volume sold. That is the volume-weighted average price. It differs from the plain average of the prices, which gives one truckload the same weight as a contract covering half the crop. The FAO defines producer prices as the prices received by farmers at the farm gate or at the first point of sale, and your weighted average is that figure for your farm.
The weighted average leaves out the cost of waiting. Grain held in a bin carried interest and shrink that no settlement sheet shows. Whether it is worth waiting to sell works that cost out; keep it as its own line beside the sheet.
Then compare shares. The planned share is the percentage the plan set for a portion before the year, copied from the plan. The sold share is the tons sold in that portion divided by the total tons, as a percentage. The gap is the difference between the two, written in percentage points: 55 percent sold against 40 planned is 15 points above.
| Portion of the plan | Planned share | Sold share | Gap |
|---|---|---|---|
| 1. Before planting (by March) | 40% | 55% | 15 points above |
| 2. Growing season (April to July) | 30% | 25% | 5 points below |
| 3. Harvest and after (from September) | 30% | 20% | 10 points below |
The gap is the question to ask, not a verdict. In the example the farm sold 15 points more than planned before planting, and the sheet does not yet say why.
Why is the best price of the year the wrong yardstick?
Because nobody knows the high until the year is over, so measuring against it grades luck, not decisions. A University of Illinois study of corn and soybean marketing advisers opens with an old saying: farmers market two-thirds of their crops in the bottom third of the price range. Its own estimates of the price farmers received paint a milder picture. Over 1995 to 2004, that price fell in the bottom third of the range 38 percent of the time in corn and 20 percent in soybeans. It reached the top third 10 and 18 percent of the time, and the middle third 53 and 63 percent. The figures are rounded, so each set adds to 101.
Read those figures for what they are: corn and soybeans in central Illinois, from advisory programs that the authors sampled. They say nothing about peanuts or Georgia. What carries over is the pattern: the top is rare, the middle is common, and a farm judged against the top fails almost every year.
Choose the yardstick before the first sale. The Illinois authors used two. One is the average price the market offered over the months a farmer could have sold; the other is the average price farmers actually received. For the 1998 central Illinois corn crop, the first came to $2.24 a bushel and the second to $1.92: same crop, same year, 32 cents a bushel apart from the choice of yardstick alone. Your weighted average is a price received, so it belongs beside the second kind. Against offered prices, part of the gap would come from the yardstick and not from how you sold. Write the choice into the plan, and keep the prices buyers offered in a price record with a source, apart from the price received.
For a public line beside your average, the University of Illinois keeps a database of the average price received by United States farmers from 1960 onward. It is built from USDA data and covers corn, soybeans, wheat, hogs, steers and heifers, calves and milk. It warns that these prices may differ from the prices the market offered. Peanuts are not on its list, so for another crop ask whether your state or national statistics agency publishes the same kind of series. Use it as a dated line next to your own average, not in place of it: a public series averages many farms, and your settlement sheets hold the exact figure for yours.
Where do the planned shares come from, if not from memory?
From the plan written before the year, copied line by line when you compare. The share sold by a given date swings widely from year to year, and memory drifts toward how things turned out. McNew and Musser followed Maryland grain marketing clubs from 1994 to 1998. The share priced at harvest, in October, ranged from 10 percent in 1997 to 68 percent in 1994, although those were paper trades in a marketing exercise, not real sales.
In a laboratory study with 63 volunteers, Kaida and Kaida found that people who had seen the correct answers to estimation questions recalled their own estimates as closer to the correct ones. The effect was larger with 50 questions to remember than with 20. The study was about general knowledge, not sales. A marketing year is many decisions, each tied to a price that later looked good or bad.
So copy the planned share from the plan, and never type it from memory when you compare. A plan rewritten after the results are in will look as if it was followed, because it has been bent to fit what happened.
What changes in next year’s plan, and who writes it down?
Two lines under the sheet, written by the person who decides sales. They are the only part that is not arithmetic. The first names what explained the largest gap. The second says what changes in next year’s written plan because of it: a change to the plan itself, not a promise to behave differently. In the example the largest gap is the 15 points above plan before planting. If cash due in March explains it, the change goes in the first portion, with a share that matches the cash the farm needs by then.
The fix is rarely a better forecast. The Illinois authors found that it is difficult to predict the pricing performance of advisory programs based on past performance, so a sharper adviser is no sure fix either. What you can change is the plan. A portion can have a trigger (the price or date that starts the sale) that never fired because no one had authority to act on it. A sale date can fall in a month when everyone is in the field. A share can be more than the trucks and storage could deliver. Rewriting those lines before the year starts is legitimate in a way that rewriting them afterwards is not.
The average price also feeds the margin. If you keep a written margin target, its income side uses the price from this sheet, and a remembered price there spoils a second document. The comparison also happens only if it is booked: put a date on the calendar and a name beside it.
Checking what was done against what was planned, and carrying the finding into the next plan, is a regular part of farm management; more on selling is in the marketing section of the library.