The No. 1 danger to your marketing – plus three tips for prevention.
Jul 14, 2011
It’s been said the wolf is always at the door. He sits, waiting for bad times and a chance to blow the door down. Right now, times are good. Your profits may be better than ever. As such, it’s easy to pay less attention to the wolf.
That’s precisely what he’s hoping you’ll do. Apathy is his ally and the biggest danger to your marketing. Right now, apathy is in growth mode.
When grain prices break into new highs and seemingly can do little wrong, do you pay less attention to your marketing? Ironically, market risk is at its highest during those times. It may not seem that way. After all, what’s risky about positive news on top of rising prices?
Think of grain markets in 2008, the early-2000s housing boom, the late ‘90s dotcom boom. Many people assumed in all cases prices would continue climbing higher and eventually were caught off guard.
You don’t need to get blindsided by the market. There are steps you can take to capture opportunities that exist today, position for tomorrow’s opportunities, and protect against downside risk.
Before I elaborate, allow me to say that corn certainly could go much higher from here. If you read my recent report, which offers a futuristic look at U.S. agriculture and the world, you know why corn could reach $10.40 on the low side and $11.20 for nearby futures. In an extreme move, it could go much higher before plummeting. Just think of the ramifications such high prices would have on land rents and inputs! Click here to get a copy of the report.
My point is simply that you must always be prepared for whatever the market might do. Nobody knows when the wolf will make his presence unavoidable.
Here are three tips for preventing apathy.
1.) Plan ahead.
Ironically, when you plan ahead, you can pay a little less attention to the wolf at the door because you’re prepared. Develop strategies based on your farm’s financial position and your risk tolerance. Make decisions in advance. Every decision you make is important. Look at how each one helps you build a strong weighted average price, also known as the value of your priced bushels, un-priced bushels assigned the current market value, and hedge positions. While it’s never too late to start approaching your marketing this way, the longer you wait the more costly marketing can become.
2.) Take action.
If your tractor’s running rough, you probably don’t wait too long before doing something about it. Marketing is similar in that you have to take action. Now is a good time. If you haven’t made any sales lately, you’re now in a rewarding position. You could forward contract and purchase puts on non-contracted bushels. With puts, you can capture upside potential. Also consider call options against forward sales in case the forecasted dry, hot weather appears and sends prices higher. The danger in waiting is not knowing what’s over the horizon.
If you have strategies in place and have been selling incrementally, congratulations. You’re capturing opportunity and managing risk.
3.) Be consistent.
We recently saw futures plummet. Sudden drops tend to cause apathy, the kind born of frustration rather than of rising prices. Consistency in farm marketing positions you for success. If you market consistently, you may not hit the top of the market. You will, however, be positioned against the killer loss. You’ll also become disciplined and able to make good decisions even when markets are volatile. Best of all, you’ll avoid the dangers of apathy.
Scott Stewart is president and 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 firstname.lastname@example.org.
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 2011 Stewart-Peterson Inc. All rights reserved.