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Create a profit plan for 2012

11/17/2011 @ 2:05pm

This seasonal price chart for corn shows the 10-year average price for each month. It is important in marketing to know that prices tend to rise into early summer.

Risk scenario planning is a management and planning process that is used by the government, businesses, and the military. The scenario planning process I find useful is from the book, The Art of the Long View, by Peter Schwartz.

Here's how to use Schwartz' seven-step process to make corn marketing decisions and to create a 2012 corn profit plan.

Step 1. State the focal issue or decisions facing your farm.

Write out the important decisions that need to be made and the timetable you need to make these decisions. It may involve which mix of crops/varieties you should plan for next year, which farms you should plant to what crops, and when you should sell.

Step 2. To identify the main factors that influence the decision, answer these questions.

● Which key factors will determine the success or failure of the decisions?

● What do you need to know to make this decision?

● When do you need to finalize your decision?

● What conditions would cause you to change your decision?

● What information should you consider before finalizing your decision?

Step 3. To identify the driving forces that influence these key factors, answer these questions.

● What are the costs and availability of land, capitol, and inputs?

● What fits best with your crop rotation?

● Do you have the equipment and other resources you would need to farm more land or to grow more acres of corn?

● If you plant more corn or rent more land, can you handle the risk?

Step 4. To rank the key factors and driving forces in managing additional risk, answer these questions.

● Are you highly confident the decisions you make will lead to more 2012 profit?

● What is the price of December 2012 corn futures vs. November 2012 soybeans futures? (This will be one of the key factors in how much of which crop you can plant.)

● What is the cost and what are the prices you can lock in with RA crop insurance after the pricing period is over on March 1, 2012?

● Can you wait to make input and selling decisions after that key time period?

● How much of a yield hit will you take if you increase your corn acres in 2012?

This ranking helps you identify the top risk related to financial uncertainty.

Step 5. To look at different alternatives and how price scenarios will impact your 2012 prices and profits, answer these questions.

● Do current prices opportunities offer you an acceptable profit in 2012?

● What is the price outlook for corn and soybeans in 2012?

● What would a 20% to 40% drop in yields in 2012 do to your bottom line?

● What would a 20% to 40% drop in 2012 prices do to your bottom line?

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The 'A' List: Month's End Markets, Grain Storage, and Farm Policy