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Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Pace yourself with marketing

Nov 15, 2013

Here’s a simple idiom with potentially profound implications: Don’t bite off more than you can chew. Whether applied to eating steak, making personal commitments or managing commodity price risk, ignoring this advice can result in unwanted or even disastrous consequences.

I’m reminded of this phrase when I hear from farmers who’ve had bad experiences with marketing. Much of the time, those experiences can be traced back to doing too much at once. That’s a problem you can easily solve.


Let’s define "doing too much at once." In this context, it refers not to the amount of production committed or contracts purchased. Rather, it has to do with engaging in marketing without committing the time necessary to see things through.


It would be like rushing through training for a marathon. You’d be sore. You might feel like stopping or quitting altogether. It wouldn’t matter if you had run races before or were completely new to it. If you tried to do too much at once, you’d risk injury and pain.

 

For those of you who have been around the block with marketing as well as to those who haven’t yet started, what if you tried committing to consistent marketing? What if you took a percentage of your production – 10 percent or 100 percent, you decide – and treated it like a marathon?


Decisions would be made with the far-off finish line in mind: your weighted average price (WAP). WAP is the value of priced bushels, un-priced bushels assigned the current market value, and hedge positions. It is a means for you to measure the quality of your marketing decisions. Getting an accurate measurement requires a commitment to consistent marketing over time.


Short-term results would have less emotional impact. If you sold corn today at $5 and saw it rally to $5.25, you’d still be around to see it drop to $4.50. That’s a hypothetical scenario. The point is that the market is always going to move, and one decision – good or bad – doesn’t tell the whole story.


If you’ve had a bad experience with marketing or no experience at all, I encourage you to start slowly and work your way up. Pace yourself. Develop some simple strategies and maintain the discipline to execute them.


If you start small and stay consistent, you may not see big results. However, you will learn, and there’s great value in learning what marketing can do for you. Not to mention, you’ll learn more about yourself.


Are you the type of person with the stick-to-itiveness so necessary to becoming satisfied with your marketing? As we enter what could be a period of lower volatility, now could be a great time to get yourself to the starting line.


Scott Stewart is CEO of Stewart-Peterson Inc., a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2013 Stewart-Peterson Inc. All rights reserved.

Timing & Emotion: Two marketing factors to heed

Sep 11, 2013

An article in Entrepreneur magazine this summer caught my eye with the headline "Timing is everything." I liked the secondary heading even better: "A record-high stock market exposes the suckers. Don’t be one of them."

 

By this time I was smiling, and of course, interested in reading on. The article was written by J.D. Roth, who founded a finance blog at getrichslowly.org and authored a personal finance book. I also find the website address worth noting. While marketing is not a means to get rich, the word "slowly" has merit. Great marketers focus on building a strong weighted average price for their production over time.

 

In this article Roth emphasizes the old mantra "buy low, sell high" – which is advice everyone has heard, though not necessarily followed. Case in point: Roth notes that with the stock market climbing, many who sat on the sidelines the last few years are getting back in and doing just the opposite – buying high. Roth minces no words in his article, saying: "Wall Street has a word for these people: suckers."

 

So why do people not follow the advice that’s been around forever? In a word, it’s emotion.

 

I have written often about the need to avoid emotion in your marketing. While it’s easier said than done, once you learn to be disciplined and not allow emotion to influence your decisions, your marketing can go to the next level.

 

Roth puts it this way: To make money in the market, remove the human element from the equation. He provides several examples in his article on ways to remove the "human element" that apply to marketing. Here are two that I particularly liked:

 

Don’t Follow. He says, "If you do what everyone else is doing, you’re likely to get burned." I encourage you to be the contrarian he’s talking about. When everyone is bullish, find a reason to be bearish – without going to extremes.

 

All the time we get asked what the consensus is among producers, are they selling or not? If we say that everyone wants to sell, they respond by saying they want to sell too. That’s the worst way to reach a decision. If you find everyone is selling corn, it’s probably time for you to buy.

 

In most years, corn producers are not as far sold as they hoped to be by summer. As prices continue to slide, they hope for a rebound and begin building a consensus as to why prices can bounce back. A contrarian might sell into that weakness – rather than sell later, after prices have gone down long and far.

 

Consider this additional potential: When prices are weakest, your neighbor is hesitant to upgrade equipment, and rents are attractive, those who did a great job of marketing can take advantage of lower rents and sales on equipment.

 

Stick With It. The market will go through dramatic swings; history has shown us that. Emotionally you must be prepared for those swings. Be ready by pre-planning your strategies and knowing well in advance what you’re going to do when the market does its thing. Then, when the storms hit, stick with your decisions. Don’t be swayed by the news of the moment.

 

I’ll end with a quote from Curtis Faith, a Chicago trader who turned a few thousand dollars into a fortune of over $200 million in the early 1980s: "Human emotion is both the source of opportunity in trading and the greatest challenge. Master it and you will succeed. Ignore it at your peril." This same thinking applies to your marketing.

 

Scott Stewart is CEO of Stewart-Peterson Inc., a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2013 Stewart-Peterson Inc. All rights reserved.

 

Lenders share their view on “being the producer”

Jun 14, 2013

In the second part of his two-part blog on lenders and marketing, guest blogger Mike Hogan, commercial analyst with Stewart-Peterson Inc., shares comments from ag lenders who participated in a simulated marketing activity.

 

This spring, I had a unique opportunity to help lenders experience what it’s like to be in the shoes of a producer making marketing decisions. Through a farm marketing simulation activity that Stewart-Peterson created, lenders attending the trade show at the Wisconsin Banking Association’s Ag Lenders Conference in mid-April had the opportunity to market one month’s worth of milk production for a 400-head dairy and one month’s purchases of soymeal.

 

To help participants experience the risk that occurs in the real world, the activity included three pricing periods and as the market moved (within the three periods) each participant’s weighted average price, or WAP, also moved. We call the simulation What’s Your WAP? and I explained more about it and which marketing strategies faired best in this recent blog post "Simulation activity underscores the difference strategic marketing makes"

 

In visiting with lenders who participated in the simulation, many agree that the experience gave them great perspective – both in better understanding the market and in grasping the emotional factors that influence decision making.

 

Jason Lindeman, vice president and agricultural loan officer at AbbyBank in Abbotsford, Wis., valued the exercise because it required making decisions and showed the outcome from those decisions.

 

Jason shared with me that he liked the tangible learning experience What’s Your WAP? offered compared to simply talking about "what if" scenarios. "The exercise definitely gives participants a better understanding of the impact of your trades made," he said.

 

Because of this Jason added, "I think producers hesitant on buying into marketing would be more likely to market their milk and feed after doing a simulation like this."

 

As well, Jason said the marketing activity demonstrates how important planning and consistency are in marketing. "It’s important to have – and remember – your plan in marketing and not get too greedy when the opportunity is there to meet your marketing objective."


Brad Guse, vice president and agricultural banking officer with BMO Harris Bank in Marshfield, Wis., also found value in the activity.

 

Interestingly, it was Brad’s suggestion about a year ago that prompted us to develop What’s Your WAP? He wanted to see something developed that would help lenders "practice what they preach" and give them a chance to experience what it’s like to make marketing decisions and see the results.

 

Of his experience with What’s Your WAP? Brad told me, "It certainly put us in the producer’s shoes. We felt the emotions and angst that goes along with making decisions and pulling the trigger."

 

Because new market information was shared with participants in each of the three trading decisions, Brad said he also felt the pressure of having to make relatively quick decisions, and he admitted he’s now more cognizant you don’t always have enough time to make the best decisions.

 

For me, this really underscores the importance of pre-planning marketing. Marketers who know what they’re going to do in advance if the market goes up a little or a lot, or down a little or a lot avoid having to make difficult decisions in the heat of the moment. Emotional decisions often turn out poorly.

 

I asked Brad if he was surprised to learn that those marketers who were active, but not too aggressive, ended up with the best weighted average price (WAP) for both milk and soymeal in the end. He said he wasn’t – and compared it to the tortoise and the hare. "Steady and consistent is important in risk management. That’s the lesson. You don’t want a strike out that takes you out of business."

 

I couldn’t agree more. Marketing is a marathon, not a sprint. There are no shortcuts

that yield long-term success.

 

Mike Hogan is a commercial analyst for Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Mike at 800-334-9779, email him at mhogan@stewart-peterson.com

 

Scott Stewart is CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2013 Stewart-Peterson Inc. All rights reserved.

 

 

Simulation activity underscores the difference strategic marketing makes

May 30, 2013

Guest blogger Mike Hogan, commercial analyst with Stewart-Peterson Inc., shares what happened when a group of agricultural lenders participated in a simulated marketing activity.

 

A well-known proverb suggests "There’s no substitute for experience." I think that’s a statement most of us can agree with.

 

Unfortunately, gaining experience – especially in the marketing realm – can sometimes be a costly endeavor if you don’t understand all the aspects and alternatives available.

 

It was that premise that prompted Stewart-Peterson to create a farm marketing simulation activity called "What’s Your WAP?" – with WAP standing for weighted average price.

 

Weighted average price is the net average price received over time for all of your milk production (or paid out for feedstuffs). It is calculated by averaging the value of priced milk per cwt., the value of un-priced production assigned the current market value, and the value of any milk with hedge positions. Averaging these values is important, because the price you receive for your production at any given point in time might be higher or lower than the current market price. It should be your goal to make strategic and incremental sales (or feed purchases) that build the best possible weighted average price for all your production long term.

 

The simulation allows participants to make milk and soymeal trades in a fictitious market setting. To truly mimic the risk that occurs in the real world, the activity includes three pricing periods, and as the market moves (within the three periods) each participant’s WAP moves. At the end of the activity, participants can compare WAPs with one another and determine how they did.

 

In short, this simulation provides a great opportunity to gain some practical marketing experience without the risk of real dollars on the line.

 

I was part of a Stewart-Peterson team that debuted the "What’s Your WAP?" activity during the trade show at the Wisconsin Banking Association’s Ag Lenders Conference in mid-April. The event draws approximately 120 bankers from over 60 banks and is the only bank-focused agriculture conference in Wisconsin.

 

Bankers who participated in "What’s Your WAP?" were told they owned a 400-cow dairy with an annual production of 12 million pounds of milk. Using futures prices and option premiums, they were charged with marketing one month’s production of milk (1 million pounds) and managing one month’s expected purchases of soymeal (40 tons). Futures contracts were offered, which replicates the pricing activity of a cash sale or forward contract. Cash sales and forward contracts were not allowed since those positions cannot be offset.

 

The Results?

The response to this marketing simulation activity was overwhelmingly positive. We had more than 100 of the 120 attendees participate and actively engage in marketing their milk and feed. They were asking questions, competing with their fellow bankers, and working hard to improve their marketing.

 

This was a real opportunity for bankers to stand in the shoes of a producer, make marketing decisions and experience the outcomes of those decisions.

 

Among the participants in the simulation, we found that 70% beat the market average by using futures or options.

 

The table below shows the WAP for milk and soymeal. Those participants who were actively managing positions during the three pricing periods finished with a higher WAP for milk than those participants who did nothing.

 

 

For this simulation, lenders who took the market average for soymeal got the best price. However, it is also important to note that those who took the market average in milk got the worst price. Notice that the lenders who made pricing decisions for both milk and soymeal in two pricing periods did quite well. Overall, those lenders had the best WAP for both milk and soymeal.

 

In reviewing the results, it becomes evident that marketing has a "sweet spot" in the middle. If you do too little or are too overly aggressive and border on speculative activity, it can result in a diminished return. For this simulation, those who hedged were 2% better off across all price scenarios than those who engaged in speculative activity.

 

Marketing can be thought of like applying herbicides to your crops. You need to apply some, but doing three or four times the recommended rate can be detrimental. You need to find the middle ground.

 

From this activity, I believe two take home messages are clear.

·         First, marketing does make a difference as opposed to doing nothing and accepting the average price. Great marketers manage milk and feed to get the best possible WAP for both over the long haul. By building the best possible price for milk and feed individually, you are also incrementally building the best possible margin for yourself.

·         Second, we can conclude that marketing decisions can’t be a "one and done" deal to achieve the best results. In order to capitalize on every opportunity the market offers, you need to make incremental decisions that gradually build the best possible WAP for milk and feed. The key is being consistent and planning for the long-term.

Producers who consistently engage in marketing to build a strong WAP over time can minimize the unwanted highs and lows in the marketplace and remove the volatility from their revenue and expenses. Consistent marketers won’t always capture the best price, but they position themselves to also avoid painful losses. Think of it as building a financial cushion for the really tough years.

 

While this exercise was a simulation, it was also a realistic opportunity for participants to examine what great marketing looks like and the strategic focus that is so necessary. Our team at Stewart-Peterson can offer "What’s Your WAP?" as a free, educational activity to other groups as well. Contact me if you are interested.

 

Mike Hogan is a commercial analyst for Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Mike at 800-334-9779, email him at mhogan@stewart-peterson.com

 

Scott Stewart is CEO of Stewart-Peterson Inc., a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2013 Stewart-Peterson Inc. All rights reserved.

 

 

Are you ready for higher interest rates?

May 03, 2013

No business owner likes the thought of higher interest rates. But rate hikes and inflation are not something to be ignored – and both are a very real threat that I see looming on the horizon for dairy operations and all businesses.

 

At the pace that the Federal Reserve is printing money – more so than at any other time in history, the likelihood of having higher interest rates down the road is really high.

 

Surprisingly, in my conversations with dairy producers who have expansion plans, many have not really thought about the impact or risk of higher rates that are likely to be present 10 years from now when those loans come up for renewal. This is something to pay close attention to and plan for, especially if you’re considering expansion plans any time in the next 10 years.

 

During my visits with dairy producers at the beginning of the year, I noted that about a quarter of them had no expansion plans; a quarter of them planned to update facilities but not expand; a quarter of them planned to expand moderately by adding a few hundred cows; and the rest of them had significant expansion plans.

 

This is drastically different from five years ago when 80% of the dairy operations I visited had plans to double or triple their herd sizes within a couple of years.

 

Whatever stage you are in with regard to expansion, just be very cognizant that rates are low now and are likely going up.

 

Consider this scenario: A dairy producer takes out a 10-year, $3 million expansion loan with a 20-year amortization. It has a fixed rate and a balloon after 10 years.

 

What happens when the loan comes due 10 years from now if there’s still $1-2 million in principle due on the loan and interest rates are at 8% instead of 3%?

 

Well, all of a sudden the dairy operation that’s been doing well the last 10 years and looked like it was totally profitable finds itself completely incapable of servicing its debt and could be out of business in a blink.

 

That said, you would be wise to analyze your expansion plans for the next 10 to 20 years. You might consider coming up with several different "what if" scenarios; at Stewart-Peterson we call this Market Scenario Planningsm. Brainstorming in this manner gives you a chance to evaluate and strategize how your operation might prepare for the future – especially if interest rates start to climb.

 

Plan ahead and make sure you are not in a position where you need to borrow money when the rates are high – because if you have to borrow expensive money, you may end up out of business. My advice is to borrow all the money you want at cheap rates and absolutely have that money paid off at the end of the fixed term.

 

 

Scott Stewart is CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com

 

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2013 Stewart-Peterson Inc. All rights reserved.

 

 

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