Four Keys to Farm Marketing

Business Key

• Market with business goals in mind, profitability, ROA, etc.
• Know your "Profit Zone" across a range of yields.
• Production Risk Protection.

Tools Key

• Use the right tool for the right job
• Use historic price ranges to guide tool selection
• Use outlook to help in tool selection

Time Key

• Extend the time in which you market
• Use seasonal trends and odds

Action Key

• Make the best decision you can and don't look back

Business Key

• Market with business goals in mind, profitability, ROA, etc.
• Estimate your Cost of Production. 
• Know your "Profit Zone" across a range of yields.
• Production Risk Protection.

Old School

• Old style marketing education was impossible to use for most farming situations.
• Economists, not business instructors or accountants, were teaching marketing
• Economists are all about forecasting.
• Their plan, forecast a price then "sell the high" or "sell the upper third" or "sell the top 10%"  Sounds great.
• Also, commodity traders teaching marketing
• Take a position based on expected market direction.
• Try and make money in futures account.

New School

• Consider using the techniques and decision making processes that have made you successful in other parts of your business, such as producing your crop.
• Focus on common sense and business not on price prediction. 

Profit Zone

• Focus on Gross Revenue Per Acre, not just price per bushel
• Establish Profit Zone
• Cost per acre = bottom of profit zone
• Profit goal per acre = top of profit zone
• These techniques give "meaning" to price.

Apply production thinking to marketing

• "As much as I can get" or "selling the high" are mythical goals that are the cause of "bull fever" and is the major reason why good prices come and go without being sold. 
• Set price goals like your yield goals - profit minded!
• Set your profit objectives based on a high target ROA or other factor.

Apply production risk management to marketing

• Manage your market risk like you manage your production risk.
• If you thought aphids would cut income by $140/ac, would you spray?
• If you thought weeds would cut income by $100/ac would you spray to kill weeds?

Market Risk Greater than Yield Risk

• $2.43 X high Yield of 186 bushel = $451.98
• $2.43 X low  Yield of 124 bushel = $301.32
• Production Only: Risk Range of $150.66 per acre
• 162 yield x High Price of $3.59 = $581.52
• 162 yield x Low Price of $1.80 = $291.60 
• Marketing: Risk Range of $289.98 per acre 

Loan rate is no longer always a meaningful floor

 Compare Business Key to your Good Production Practices

• Do you fertilize with a production goal of "as much as I can get"? 
• Or do you have realistic production goals based on sound economic, agronomic, and historical facts.
• Manage your market risk in the same way you manage your price risk.  

Our Plan for Your Business Key

• Listening to your goals and objectives oUnderstanding your Costs and Financials
• Review of Production Risk Protection
• Setting Profit Goals

Tools Key

• Use the right tool for the right job
• Use historic price ranges to guide tool selection
• Use outlook to help in tool selection

Primary Tools for Pre-Harvest Sales

• Cash Forward Contracts
• "Futures Only", "Hedge to Arrive" or "No Basis Established" 
• Buy Put Options
• Selling (short) futures
• Option Windows

Primary Tools for Post-Harvest

• Store with Loan Floor
• Store with puts as floor
• HTA or Forward Contracts to Capture the Carry
• HTA or Forward Contracts and buy calls
• Sell cash and buy calls
• Sell cash and use option bull call spread

Using Futures and Options

• The average trading range for corn is $.87/yr and beans is $2.05.
• In 2007 that range was $1.47 for corn and $11.80 for beans
• In 2008 that range was $4.63 for corn and $ 8.11 for beans
• That's a great deal of opportunity and risk. You need a range of tools to deal with that.
• Remember, the goal IS NOT making money in your futures account, the goal is making money farming.
• If you end the year with a loss in your futures account it does not mean you did a poor job of marketing. oThe gross revenue (cash and futures) is the key.

 Compare Tools Key to your Good Production Practices

• You wouldn't think of limiting yourself to one corn hybrid, one bean variety, one tractor, one implement, one wrench.
• Don't limit yourself to just storage or just cash tools in marketing.

Apply Production Attitude to Marketing

• I hear "coffee shop" talk that says "I tried (forward contracts, options, futures, etc) once and they didn't work."
• In farming you work to make new techniques successful. 
• oIf you have a herbicide problem do you give up on herbicides? No, you worked to make it successful.
• Don't let these generalizations that typically ignore facts and true comparisons deter you from making your marketing better. 
• Remember forward contracts can have an "opportunity cost
• Storing grain can lose money.

Our plan to help you use more tools

• We work one-on-one with you to consider a full spectrum of marketing tools, including local cash marketing tools, options, futures, and government programs so you can use the tool that fits your specific needs.
• We explain things and answer your questions.
• Because we work on a consulting basis we help you use cash market tools, not just futures and options.

Time Key

• Extend the time in which you market
• Use seasonal trends and odds

More time = more opportunity

• Markets have seasonal tendencies.
• There are certain months that tend to offer better opportunities to get the price you want than others. 
• By extending the time in which you market you can give yourself 2 to 3 seasonal periods to get the market into your profit zone.

 

Seasonal trends can change over time due to local and world wide influences.

Action Key

• Make the best decision you can and don't look back

Compare Action Key to Your Good Production Practices

• You don't make production decisions on gut feel or emotion.
• You receive and study facts and data on yield results, tests, studies, etc. and you make informed decisions.
• You use experts, like agronomists
• Some experts are part of a "value added" in the products you buy.

Opportunity

• The average farmer made $56,347/yr. between 2000 and 2004
• Average acres farmed was 964
• Per acre profits were $58.45
• There has been the opportunity to lock in over $400/a of profit for the 2008 crop.
• Profit opportunity of $200/acre for the 2009 crops. 

Monitoring Critical Functions

Just like you monitor critical function of your equipment like Oil Pressure, Engine RPM, and Temperature, we help you monitor 3 critical ways to look at your market position.

Position Management - 3 Ways to look at your crop "Revenue"

• "Snapshot" of your marketing and revenue as of today - Mark to Market ( position tracking)
• "What if" relative to price changes and option time value decay (position graph)
• "What if" over a range of yields and includes crop insurance impact (AgroQuoter)

Our plan to help you take action

• We get on your side of the table.
• By knowing your situation and needs, we are able to help you make decisions that are geared to fit you.
• We have a proprietary software package to help you visualize all your alternatives