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A woman with a plan, and a back-up plan

Agriculture.com Staff 07/06/2010 @ 5:14pm

Your to-do list for today might look like this:

  • Run for parts
  • Laundry
  • Plan holiday dinner menu
  • Help kids with homework
  • Take lunch to the field
  • Make sure to look at the markets ... and SCENARIO PLAN!

In the midst of the hustle and bustle of the harvest and holiday season, we tend to run on all cylinders, not to mention more than a few cups of coffee! And, if I had to guess, I'd imagine that your to-do list might be three times as long as the list above, and just as you get one item crossed off, another item is added on.

If you haven't had a chance to notice, the grain markets have had a substantial rally since September. Prices now are consolidating, or trading in a rangebound pattern, waiting for the freshest piece of news to dictate further direction.

Will the news allow for a breakout to the upside, to test the summer highs? Or will the large crop trump prices and send the market tumbling lower?

My advice: Make a strategy that allows your farm to be prepared for either scenario. Don't wait and see. Be ready to act on opportunity.

Some farmers plan, but don't have contingencies. As a marketer, you guess that the market will go one way, and you plan to act accordingly. For example, let's say you have an order in with your elevator that, should cash corn trade at $4.00, you'll sell 10,000 bushels. You feel good. You have a plan! The cash market however, trades up to $3.98, never hitting $4.00, and your order does not get filled. The market pushes lower. You have no contingency plan, the market goes the other way, and you have no plan in place to respond. You are left reeling and frustrated.

Good marketers have contingency plans in place, so they can act when they see opportunity or protect themselves against tumbling prices.

How does a marketer create a scenario plan? It takes a well balanced blend of fundamental analysis (the gossip in the marketplace), knowing your local cash market, understanding technical charts, and discipline. In the coming months, I'll take a closer look at each of the above aspects and really examine the important aspects of each.

It may seem like a daunting task to learn how to scenario plan, however, the best of the best are already doing it. Scenario planning is the process of creating possible future situations and implications -- sharply higher markets, markets that stay low for two years at a time, markets that stay consistent, input costs that might fluctuate drastically. Scenario planning is forward thinking and preparing your farm for the unthinkable.

We believe that markets will continue to be volatile in the coming years, and often times, better pricing opportunities arise when markets are uncertain, rather than when they are certain. That means you have to manage through uncertainty. You have to be ready with contingencies: sell, hedge, store, or whatever the appropriate action might be. (At our firm, we call this Market Scenario Planning.)

I don't have to tell farm women how to manage through contingencies. You do it every day as you handle your own to-do lists. I hope this column has given you a picture of how to apply that skill to commodity marketing. It's what the best marketers will be doing in the year ahead.

If you have questions, you can e-mail Naomi or post a marketing question here:

Your to-do list for today might look like this:

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