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Marketing plans?

Agriculture.com Staff 01/12/2008 @ 9:25am

My busy season for doing marketing workshops is about to begin. This year and for the past year the focus of the workshops has been on marketing plans. I have never been one to promote the concept that a marketing plan has to be written. My theory is that writing a poor plan on paper will not make it into a good plan.

Individuals who rigidly stuck to a plan that was heavily oriented toward forward pricing paid a big price in missed opportunities in 2007.

How then does an individual come up with a marketing plan that makes any sense? The format that we use in the workshops promotes, first of all, deciding how much of the crop to forward price and how much to sell at harvest or how much to store and sell post harvest. My experience and research shows that it is more important to forward price corn than soybeans.

The frost rally and dead cat bounce normally offer opportunities to sell soybeans near or slightly after harvest at a price that is competitive with pre harvest sales. A key in any year is the price level being offered for forward contracts. Prices as high as they are this year will make forward pricing more logical than if prices were near the loan rate.

The actual plan for triggering sales should include price targets, trigger dates, sales tools and other factors like technical indicators. My experience has been that most farmers stop with setting price triggers. The pitfall with that approach is that the trigger price may be too high and not get hit, leaving the grain unpriced. Or, it may be too low and get hit early in the marketing season as happened to many in 2007.

Adding decision dates to the plan ensures that sales get made regardless of what the price does. The opposite side of the decision date tool is that you can set a date before which you will not make additional sales, thereby ensuring that you will have some grain to sell at the higher price in the event of a big run up in price.

In a market such as we have now, selecting the proper tool to make the sale is difficult and extremely important. Without a doubt the most popular tool is a cash sale or cash forward contract. With wild basis swings, however, a different approach may be more appropriate. Futures, hedge to arrive and basis contracts all have a place under certain scenarios.

In 2007, I resolved to use only options when pricing corn because of the up side potential. Most people do not like options because of the premium. However, they worked very well for me last year. I had protection through the growing season but still had my corn to price at or following harvest.

The final thing to consider is the possibility of using a technical indicator along with the other factors. There are a lot of technical indicators and different people see them in different ways. None works perfectly every time. It is a matter of preference when and how to use something like a moving average, trailing stop or more sophisticated technique.

Now that the January report is out of the way, it is time to formulate a marketing plan for the remainder of the 2007 crop and the portion of the 2008 crop that you want to forward price. The numbers do not indicate any urgency to be in a hurry. Be sure to write flexibility into the plan!

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