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Al Kluis: Using a market advisory service

I
have been providing farmers with advice and recommendations for 36 years. The products I offer and how I communicate with farmers have changed dramatically the last five years. How farmers use market advisory services has changed, as well.

The dramatic change in what I provide has been brought about by technology – especially what I send and provide through the Internet. What farmers want has also changed with more volatile markets and less government involvement.

In September 2010, I sent out a survey to current customers and customers who had not renewed. The responses were mostly positive and enlightening. The majority indicated they liked the information and recommendations. Three of my most popular services that farmers use, I wasn’t even offering two years ago. Those are the morning e-mail updates, webinars, and text message action alerts. I found out that when people did not renew, the main reason was because they were not using the information.

To end up with results that you like, you have to do your homework. I would encourage you to try a trial subscription to several different services. See if you understand the information and if it fits the way you think. If the service recommends a lot of futures trades and option trades, and you do not use futures or have a brokerage account, then odds are it will not work. 

I find it useful to classify what type of market information farmers want when they sign up, and then I customize the information to fit their needs. I use three broad categories.

Three Categories

Farmers in the “A” category use cash sales or forward-contract only. “A” farmers are looking for help with setting price targets where they should make sales and the timing of when to sell. They will give up some potential basis gains on new crop sales to avoid the stress and possible anxiety of the margin calls that come with futures and options. These customers often have a solid balance sheet with big bins and deep pockets. They have a pattern of holding too much grain too long, and they need someone like me to encourage them to pull the trigger.

Farmers in the “B” category use hedges, hedge-to-arrive contracts, and at times will buy call or put options. They are very selective in using futures because of the potential for margin calls. But they do use all of the merchandising tools available to try and maximize storage income using the carrying charges and basis appreciation to add onto their bottom line. These farmers get daily information, quotes, and action alerts over their phone and the Internet. They are willing to spend some time each day to stay informed. 

Farmers in the “C” category are those who trade to attempt to make money in the grain futures and option markets. These people are aggressive traders who will lift hedges, write options, and buy back futures to replace earlier sales. They spend a lot of time each day (and some nights) monitoring the markets, reading several updates, and doing a lot of phone work.

Before you can have success in working with any advisory service, you need to decide which category you’re in.

Once you enroll in a marketing service there are four things you can do to increase your chance of success.

December 2009 CBOT Corn

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November 2009 CBOT Soybeans

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1. Review information daily. Call your offers in. Marketing is now a year-round commitment. With the global markets and the huge amount of Wall Street money trading the grain markets, you will often get the best selling opportunities 12 months before you even plant the crop or sometimes right at harvest.

2. Follow the advice. If, as an example, you have a target in to sell 20% of your 2011 crop when December 2011 corn hits $5.50 but you are more bullish than that, maybe pull back on the amount you sell. But at least make a partial sale.

3. Call or e-mail in questions. I always try to have my office respond to a market question within 24 hours. At times you may need clarification. Livestock producers and seed farmers need to take a slightly different approach to the market than a strict grain farmer.

4. Learn all you can. I offer web-inars twice a month and have videos on some basic marketing concepts on my website. My best customers are the farmers who understand marketing and use my information so they can make better decisions. They do not always follow my advice and I am not always right, but at the end of the year they have financial results they like. If you are not willing to learn more about marketing, one of the best decisions you can make for your farm is to find someone on your team who is willing to learn.

On Monday as I was writing this article, I had two letters come across my desk. One contained a check; one did not.

The first was a thank-you letter from a fairly new subscriber in the eastern Corn Belt with a renewal check. He wrote how much he appreciated the marketing service. He liked getting the information each day, he used the action alerts, he liked the webinars and had not missed one.

The second letter, from Iowa (the one without a check), commented that the information was not worthwhile; he was very frustrated with grain marketing and would need to try something else.

I wondered if this farmer had got the same information. How could two farmers come to such different conclusions? So I called both of them.

I made the call out east first. The satisfied customer indicated that making a series of 10% sales worked great in his cash flow, and by having a plan and having offers in, he felt for the first time in 30 years of farming that he was in control of his farms profits.

The call to Iowa turned out pleasant, and we both learned from the call. The farmer indicated that he was just too busy to read the e-mails or to follow the text messages, and he had not logged into one webinar. He said he was not disciplined in his marketing and only signed up when his banker told him he needed to do something different.

I told him I would extend his subscription for 30 days at no charge if he would start to use the services and participate in the next webinar. He had his son help him log in to the next webinar, and now he has his son getting the morning e-mail updates. I think I will keep the farm’s business, because he is anxious and willing to turn it over to his son who will use the services.

I believe that farmers who use marketing services end up with a better average selling price. But make sure you are comfortable with the service you are working with before you enroll.  

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