SoyRoy: Do You Really Need Experts for Marketing Advice?
The lead article in the popular farm press on August 24 concerns two multinational grain firms that lost a lot of money trading soybean futures. In other words, they were on the losing side of a large position in the soybean futures market. Most farmers would consider that situation laughable except that the money they lost was probably customers’ operating capital. From what I understand, they operated some type of pool designed to enhance the return on the soybean crop for the farmers involved. I do not know the exact strategy they used, but it had the opposite effect from what was intended.
I have been farming and raising soybeans in excess of 40 years. I have seen marketing schemes come and go. I do not have the time or space to describe all of them. Suffice it to say that there have been many. Most try to convince potential farmer clients that they are poor marketers and that there is money to be made if only the experts did their marketing.
A good example of this strategy took place a few years back when one of the well-known analysts was employed to make marketing decisions for a large country elevator. In the process of selling the crop, five out of six of the trades lost money. The net result was a dollar less than the going price for that year’s production. Needless to say, there were a lot of farmers mad about the results. This took place in the era of $5 soybeans when $5 a bushel was a big price.
Readers of this column know that I do my own marketing analysis. I have several principles that have served me well for a period of many years. I do not sell my marketing service for three reasons. The first is that two people can use the same information and get different results. A second is that background financial conditions will be different for different farming operations. A third is that farmers have differing levels of self-discipline that affect the outcomes of the various actions.
For these reasons, I believe that a committee will seldom be profitable at marketing any crop. I distribute my marketing information by newsletter and e-mails. Probably more important is that I use it in making sales for my farming operation. Unfortunately, this leaves me with very little record of who is using the strategies or how successful they are.
I believe in dividing my crops into increments and selling a little at a time based on cash flow needs and available storage space. Some of the farmers who follow my seasonal trend strategies like to have 100% of their crop sold before harvest. Others will not forward price anything until the crop is harvested. Most prefer an approach that is some of each. Either can be successful depending on their goals. In any case, I seldom believe in selling a big percentage of the production all at once.
I use drop-dead dates to time my sales. I always sell some corn in May. I do not know what the fundamentals will be at that time. I just know that, year in and year out, sales made in May have been profitable. I always sell some soybeans on the dead-cat bounce in the fall after harvest. Likewise, I do not know what the supply and demand situation will be. I just know that there has been a rally in the soybean market in the late fall that I can use to time sales of beans that I did not get forward priced.
There are many other strategies that I use to avoid getting caught on the wrong side as the above grain companies did. I have been trying out and testing ways to generate the best returns for the crops I raise. From telephone calls and word of mouth, I know that other farmers are using the seasonal strategies to their advantage. I firmly believe that farmers are better at marketing than they give themselves credit for. In many cases, they are comparing their results to the ideals used in promotional materials used to sell a service. Realistically, maybe they should be comparing their results to those of the companies whose track records are not all that great!