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The three M's of marketing
I conducted a marketing and technology survey with some of the farmers I worked with this spring. I got several questions and had a huge response with a lot of good suggestions.
One question was, “What is the hardest part of marketing?” I was surprised at how many farmers are still going back to last year and kicking themselves for selling too much too early. It really bothered some, who said it had caused a lot of stress in their farm partnerships.
December 2011 Corn
I tell people not to look back at the decisions they made last year. It is time to look ahead and to focus on new crop profit opportunities. The 2010 year was very profitable for most grain farmers. I look for 2011 to be another profitable year if you are in an area with good yield potential.
So how do you improve your marketing? Look at three M's: Mind, Motion, and Money. Like a three-legged stool, you need all three M's to be successful.
Learn all you can. If you do not enjoy marketing or you are not willing to attend some seminars or webinars to learn more, turn it over to someone on your team who will.
Here are some of the common actions good marketers take.
● They write down their marketing plan and review it on a regular basis.
● They make marketing a year-round project and stay updated on market news, price movement, and basis change each day.
“It is time to look ahead and to focus on new crop profit opportunities. … I look for 2011 to be another profitable year if you are in an area with good yield potential.”
● They review the markets early each morning and make decisions early in the day (not during market hours).
● They think through a plan and do not panic when they hear negative news during the day.
● They have a positive attitude about farming and how they approach marketing.
With all of the Wall Street money coming into the grain markets, there is as much motion (volatility) some weeks as there used to be in an entire year. This price volatility creates a lot of opportunities; it also creates a lot of stress.
Here are several suggestions to help you get a handle on the record volatility in the grain markets.
● Sell in smaller increments. By making a series of 10% sales, you will have some made when prices are low, but you will also have some made when prices are high. It is the final average that counts.
● Use a combination of marketing tools. I use mainly hedges and hedge-to-arrive contracts when I am getting new crop grain sold ahead. I also use some put options for farmers who are uncertain of their crops or who do not want to make a delivery commitment. Some long-time customers use forward contracts and basis contracts.
● Stay consistent. If you usually get 40% to 50% of your new crop forward-sold, do it each year. The farmers who sold aggressively ahead in 2010 and are not willing to sell any ahead in 2011 are likely to make the wrong financial move two years in a row.
● Be willing to sell on days when the market is sharply higher. As I am writing this article, corn has traded limit up or limit down 35 days so far this year. You are likely to end up with a much better final average if you are selling when prices are higher vs. when prices are collapsing lower.
● Have your resting offers in place. Since 2008, there have been a lot of times when the best selling opportunity occurs during the night markets or right at the 9:30 a.m. opening. If you do not have your resting offers in to sell, you may have to take a lot lower price when the futures close at 1:15 p.m.
What farmers want is not all that difficult. They want a good crop and to sell it at a high price.
This can be difficult to do, and each farm has a different definition of success. It is difficult to always see the impact the price moves on the CBOT have on your farm's bottom line.
November 2011 Soybeans
I have built some simple programs that my customers use to allow them to see how changes in futures prices impact the income and bottom line on their farms.
Here are some suggestions on how to make this work for your farm.
● Approach grain marketing to lock in acceptable prices on your farm. You are not trading in and out to make money to make trading gains; you are trading to lock in acceptable profit margins.
● Make a large part of your decisions based on spreadsheet sales. When your returns are high enough, lock some in. When returns improve, lock some more in.
● Keep updated on what price changes are doing to your farm's bottom line. Don't only focus on the daily up-and-down price movements.
● Stay aware of all your merchandising alternatives. Corn farmers who understand carrying charges and seasonal basis patterns can add $40 to $60 per acre to their bottom line.
● Be willing to sell into bullish news and shut off sales when prices collapse.
A lot of my customers are improving their marketing success each year.
One farmer from Michigan wrote in to say how my recommendations to make incremental 10% sales when the market is going higher had changed his life. He said, “By selling on the way up, I do not panic and sell when prices are collapsing. I used to worry about the grain markets all the time. Now I call my offers in early and go out to the shop.”
Think about how you are making your decisions. If the volatile grain markets create stress and fill you with anxiety, then you need to make some changes in how you approach grain marketing.