Al Kluis: Risk management... Control your bottom line
How can you have a market plan that works for you when commodity funds can run prices dramatically higher than they should go and then lower than you would imagine?
Like this year when corn futures dropped to $3.20 a bushel in June and then rallied sharply higher into harvest.” This was the question and comment from a frustrated Minnesota farmer. This producer had a lot of corn hedges and was looking at a 90¢ under-harvest basis. I did not have a simple answer to his complex question but rather an overall approach that I use with my customers.
To begin the process, there are four basic questions that need to be answered.
What Are Your Needs?
When I first meet with a new customer, I ask a lot of questions about acreage yields, basis, storage availability, and payment schedule. The initial meeting lets me look at what the farmer needs to generate per acre, per field, or for the entire operation. I like to look not only at 2010 but also get some projections (that are, of course, subject to change) for 2011 and 2012. Successful farms have a one-year budget, a two- or three-year marketing plan, and three-, five-, and 10-year business plans.
The farmers who sit down and work on this are often the producers who have the confidence to go out and sell ahead one, two, or three years into the future when prices and profits offer a good return.
What Are Your Farm Goals?
If I meet with farmers who say their goals are to sell the top of the market, then we may not work together. If they indicate that their goal is to generate $800 per acre in revenue for their corn and $650 per acre for each acre of soybeans, then we will likely continue. Some farmers just want to generate so many total dollars of total revenue. They know this will allow them to pay off their operating note, make a living, make their land payments, and get debt paid down each year. Every farms’ goal is different, and it is not always financial.
One farmer I worked with always wanted to have his grain sold and delivered by May. This was because when he was done planting corn and soybeans he could spend the summer at the lake with his grandchildren. He was a very solid, profitable, good farmer who knew his costs and had very specific income goals for each field.
Are You Willing To Take Advantage Of Technology?
If you’re not willing to use the Internet, a cell phone, or e-mail, then communicating will be slow, difficult, and inefficient. In this fast-moving market, you may not be able to receive and act on sales recommend-ations on a timely basis. You’ll still be able to work with a marketing service, but you may not always get the best results.