Marketing Strategy

Our firm attends quite a few industry events as a way of getting out and talking to farmers. Any given trade show or conference can give us a good pulse on what’s happening and what’s on farmers’ minds.

Usually we’re asked the standard question: "Where are commodity prices heading?" At last month’s Nebraska Power Farming Show, the questions had a strategic tone to them. Farmers were asking how certain events might affect commodity prices. They wanted to be prepared for the "what ifs." They wanted to know: How high might prices go? How low might prices go?

World events impact prices, sometimes in ways that can be difficult to grasp. World events are also unpredictable. And so it is right that farmers are asking questions about being strategically prepared in the face of uncertainty.

Here are the four big stories they asked about—the stories that are compelling farmers to be strategically prepared:

European debt crisis

Q. How is the situation in Europe going to impact our commodity markets? What should we watch for?

A. Unfortunately, this is something we will continue to hear about for quite a while. News on the debt crisis moves the market. Why? Uncertainty. Hedge fund managers and other commodity investors are skittish. Perception of what could happen is what fuels volatility. There’s a nagging feeling that everything could collapse, and so investors are always moving money to the safe haven du jour. The real problem here is not a specific trend. It’s not fear of declining exports to Europe, which are already down 30 percent since 2007. The problem is, simply, general uncertainty and investor skittishness.

China overheating

Q: We are concerned about the effect of China overheating. Is China pulling back to slow down its economy?

A: Commodity demand from China has been hand-to-mouth. The country has not been stockpiling like in the past, and that has hurt our exports. China experienced a really nice growing season for corn and soybeans, and in turn cut back to one-third of what they imported in beans and corn from the U.S. over last year. The root of China potentially overheating is real estate driven. Its real estate market is overbuilt and could cause them economic headaches. What’s most important to watch is what the U.S. dollar does – a higher dollar would hurt exports and place even more pressure on commodity prices.

Negativity toward USDA reports

Q: If we can’t trust the numbers, what can we do?

A: The next report comes out January 12. Pay attention to all reports and be alert to opportunities, yet don’t stake your marketing decisions on them. For years these reports have been creating stress. Often a number is a surprise because it is unexpected, and it is unexpected because it makes no sense based on the common knowledge that is out there. The market moves based on surprises. Usually, within a couple days after the report, the market resumes the original trend that was in place, and all the hoopla and news surrounding the report turns out to be nothing more than a distraction. If the report does change the trend of the market, your strategy should be in place to respond to the trend or change. So the bottom line is, pre-plan what you will do when the market changes, and be disciplined to act, regardless of whether the report, or some other event, becomes the catalyst.

Ethanol blender’s credit

Q: What about the impact of this subsidy ending (which has given a 45-cent-per-gallon tax credit to ethanol blenders for the past 30 years)? Will it result in ethanol plants needing less corn?

A: As 2011 drew to a close, there was a big push from blenders to pull in higher-than-normal volumes of ethanol because they expected to lose their 45 cents for each gallon of ethanol that they mixed into gasoline. There’s another thirst for ethanol: exports. Through three quarters of 2011, we exported 640.7-million gallons. That was 240-million gallons more than all of 2010.

The tax credit had an impact. Once again, though, a bigger concern would be strengthening of the U.S. dollar relative to key export countries. If that happens, the incentive to produce so much ethanol will decline.

So how do you stare down this uncertainty? As these four ongoing news stories illustrate, there’s no way to know for certain what’s going to happen. That’s okay. You can pre-plan what you will do if prices climb a lot, fall far, or do anything in between. In essence, this is what farmers at the Nebraska Power Farming Show were asking. What could happen to prices if . . .?

Tackle uncertainty head on by developing dynamic strategies for all price scenarios to protect you from extreme risk and to capture higher prices when they’re available. That way, when the markets get emotional about European news, USDA reports, China, changes in ethanol production, or other news, you can remain level-headed.

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 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 2012 Stewart-Peterson Inc. All rights reserved.

I have been following economic projections from Brian Beaulieu, an economist at the Institute for Trend Research (ITR), for the past 10 years. Overall, I’ve found his forecasts to be highly accurate. As an example, in 2003 he predicted the 2008 recession within months. ITR’s track record over the past 60 years is very impressive.

Beaulieu spoke at a meeting I attended this month and offered economic scenarios for the next 20 years. You can add his voice to the chorus expecting an era of permanent volatility. Assuming he’s correct, the road ahead looks like a roller-coaster.

You might find the details of his economic outlook helpful to your marketing. I’m not suggesting you base your marketing on an outlook approach. Rather, you could use the following scenarios he described when planning your strategies.

Bad news first. Beaulieu expects three recessions by the year 2019, including the most recent one from which we have "officially" emerged. That would make three recessions in 10 years. Between World War II and 2001, we endured on average only two recessions every 10 years.

Beaulieu is hopeful that by 2020, multiple recessions will have created political motivation to change the tax code. One of the biggest problems our country faces is the tax code. If it’s not improved, ITR expects to see a 10-year recession beginning somewhere in the 2025 to 2030 window, with the potential for widespread poverty and inter-city riots like we saw in the ‘60s.

Our budget deficit presents a severe challenge with far-reaching implications, and it could be compounded. He indicated that the current long-term projections for potential budget deficits are wholly and completely unrealistic and inaccurate. Those projections, Beaulieu said, are based on the Office of Management and Budget (OMB) using an economic growth rate of 5.04%. Yet, since World War II we have averaged 3.28%.

If you believe the next 10 to 20 years won’t be nearly as economically vibrant as the past 20 years, you have to question the growth rate figures.

He estimates that budget deficits will run at least 50% higher than projected. I tend to think we’re more likely to see deficits one to two times greater than projected.

Why is there disparity in the numbers? I can’t say for sure. I do know the OMB derives its figure by following input from Congress and whoever the administration may be at the time. If OMB projections are wrong and the deficit doesn’t subside, watch for the roller-coaster. Historically, unresolved debt fuels inflation followed by the painful cure, recession.

A recession increases unemployment, decreases spending and weakens the U.S. dollar (USD) – bad news for the economy.

On the other hand, a weak USD, relative to currencies of our agricultural trading partners, is good for exports. It could support grain and dairy prices. Beaulieu expects the USD to be weaker over the next three years against Canadian, Australian and New Zealand currencies. He says the Canadian economy is sending positive signals due to good demographics, strong natural resources and a balanced budget. Australia and New Zealand are also in this positive position, with good demographics and natural resources.

If we see high corn prices, there’s still the question of profits. High corn could also help to drive up, or at least sustain, the prices you pay to rent and purchase land. Oil in the mid-$120/barrel range by 2013, driven by demand from Asia and South America, will also impact production costs.

Inflation will drive up your input costs, too. Beaulieu believes a few factors could be behind this: Our government’s desire for inflation to help cover the cost of the national debt, higher labor costs here and abroad, and the high cost of our country’s green movement. Other market-moving scenarios constantly lurk all around us. You’re already familiar with them – drought, floods and world economic turmoil to name just a few.

Personally, I find economic forecasts compelling, and it’s not because I believe they paint an accurate picture of the future. It’s what you do with the information that’s most important. Knowing potential economic trends and considering the possible impacts on your marketing are the first steps to preparing for whatever the market may do. If you’re ready for a downturn, you can prosper through it instead of being punished by it.

I encourage you to remain knowledgeable about the big economic picture. As you may have read in this space before, I believe there are three broad keys to positioning your business for long-term success: 1.) Prepare your marketing for any scenario, 2.) Get out of debt, and  3.) Maximize the opportunities in the years ahead.

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 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 2011 Stewart-Peterson Inc. All rights reserved.

If you ever tell yourself you need to do more with your marketing, yet never find time to do it, I have an excuse for you. Mind you, I’m not saying you should use this excuse. Rather, I’m bringing it to light so that you can identify whether it applies to you. Identifying what might truly be stopping you from making more time for marketing is the first step to finding a resolution.

I came across this particular excuse when a business associate shared something in a book called Switch, written by Chip and Dan Heath. The two authors analyze "how to change things when change is hard." What intrigued me was the tenet, proven by psychologists, that "self-control is an exhaustible resource." It means that when you’re highly focused on a task, you’re using up your supply of self-control. And as you do that, you’re becoming mentally exhausted, thereby increasing the difficulty of changing behavior.

An interesting example of mental exhaustion given by the authors involved two groups of students together in a room. One group was served radishes to eat. The other group received chocolate chip cookies. Afterward, both groups were asked to solve a puzzle. The radish-eaters, who had relied on self-control to keep from eating the cookies, spent less time trying to solve the puzzle. They gave up early because, mentally, they were more tired than the cookie-eaters.

Think about the times during a day when you’re highly focused. Planning inputs for the next growing season, attending a meeting with your lender and figuring out the cost-benefit analysis of a new piece of equipment – these are just a few examples.

What else requires focus? Marketing does.

Becoming a consistent, strategic and disciplined marketer takes time and forethought. It requires willingness to regularly prepare for whatever the market may do. Or, another way to look at it: marketing done well can be mentally exhausting. This is one reason we always recommend that, to take your marketing to a higher level, you need to either become an expert or hire one. When you’re an expert at something – like growing crops – you’re going to retain the ability to think or to push forward in the face of a challenge long after a person struggling with the same task gives up.

So there, for the taking, is your excuse: mental exhaustion. You may be mentally wiped out and thus unable to do more with your marketing. It’s legitimate. When mentally exhausted, doing anything that requires focused thinking is difficult.

Of course, the book isn’t about making excuses. It’s about how to change things. If you truly want to do more with your marketing, something may need to change. The good news: usually, the more difficult the change, the bigger the eventual reward.

There are many ways to take a tiny first step that can put you on the path to improvement. For instance, do a self-assessment of your marketing strengths and weaknesses. Or attend a workshop, where you can pick up useful marketing strategies (you also might decide it’s time to become an expert or hire one). However you go about it, honestly assess how much time, energy and discipline you have. If you can make the necessary commitments, you can do marketing well.

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 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 2011 Stewart-Peterson Inc. All rights reserved.

Guest blogger Scott Burditt, an agribusiness marketing communications consultant, shares some of his thoughts on generational change.

You hear a lot about change and the speed of change. Farms today are not only managed differently from previous generations, you can almost watch management evolve before your eyes.

Some transformations aren’t so obvious. Generational changes, for example, evolve over time and create shifts in thinking and expectations that impact all of agriculture.

The average age of farmers in the United States is 55, putting them in the Baby Boom generation. Generally speaking, they see farming as a way of life. They’re emotionally attached to the land and passionate about their crops and equipment. This is generational change in the making.

Generation Y, people aged 19 to 32, have different ideas. They’re the largest generation of young people, not quite as big as Boomers but nearly double Gen X, the generation ahead of them. Gen Y is already demonstrating significant impact on the economy and will be the next dominant generation in America.

That they think and act differently has ramifications for the farm. In a presentation to Wisconsin agricultural lenders earlier this year, Aleta Norris, cofounder of Impact Consulting Group, told her audience that Gen Y farmers see themselves differently. They may not believe they can grow a better crop, but they do believe they can make more money per acre than their dads, she said.

When it comes to marketing, Gen Y farmers say they tend to be more proactive. They expect more from their lenders and prefer to work with a team of advisors.

Farming for them is both a way of life and a business.  Many Gen Y farmers are more passionate about number crunching than crops and equipment.  They want to grow the farm and manage it, instead of carrying the operation on their backs.  Additionally, they’re looking for ways to have more time with their families.   

Farming has been and always will be a bottom-line intensive business. Gen Y just views the business differently.

Boomer farmers planning to hand their operations off to Gen Y have seen what generational change means. Kids who do intend to carry on the business have their own style, intentions and expectations.

Gen Y has a different work ethic than Boomers, who have been characterized as nothing if not ambitious (although that go-getter attitude is cooling as Boomers, dogged by economic upheaval, get closer to retirement).

And, Gen Y takes a much different approach to work than the parents of Boomers, after whom Tom Brokaw titled his book "The Greatest Generation." Those of the World War II era typically went through hard times before prospering, made and kept commitments, and enjoyed one career until retirement.

Perhaps the biggest generational change of all will manifest through Gen Y farm kids who have other career plans.

Gen Yers are the multi-taskers, comfortable doing many things at once and not content with a single lifelong work path. It sounds like this generation will hasten the continuing consolidation of farms.

Actually, it’s already in the cards. While the average age of farmers is 55 and the number of farmers 65 and older keeps growing, the number of farm owners age 35 and under continues to decline (source: USDA 2002 Census).

Gen Y, with its own goals and ideals, is a giant, transformational wave created, ironically, by Boomers.

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 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 2011 Stewart-Peterson Inc. All rights reserved.

Guest blogger Mike Hogan, manager of Stewart-Peterson's Market360 service, takes a look at the impact quantitative easing, or QE1 and QE2, has had on the markets and assesses what a third round might mean.

You’ve heard the Aesop Fable The Boy Who Cried Wolf. A shepherd boy repeatedly tricks villagers into believing a wolf is attacking his flock of sheep. At a certain point, the villagers stop believing. When a wolf actually does show up, no one rushes to the shepherd’s aid, and the wolf wipes out his flock. Factors influencing market moves are like the shepherd, constantly setting off alarms. You hear them every day: weather, USDA acreage reports, global factors, political bickering over the debt ceiling, the Federal Reserve Bank’s second quantitative easing policy, or "QE2," and so much more.

What do markets do when alarm bells constantly ring? Usually they react, sometimes severely, sometimes without merit. Other times they shrug. You, as a marketer, are left to sort it out.

Let’s look at the quantitative-easing alarm. It doesn’t receive enough credit for moving the market, and it may soon go off.

In the year-long rally we’ve seen in grains and commodities in general, U.S. monetary policy has been an underrated aide. Credit for the rally often goes to decreased yields and increased demand for ethanol. Yet, we have been to these carryout levels before without the $8 price tag. If the dollar were valued at 120 instead of 75, it’s likely our prices would not be as high as they are today.

Looking back to July 2010, when the Fed talked about implementing QE2 to simulate the U.S. economy after QE1 lost efficacy, we saw the market rally substantially. It may even be that QE2 spared us a correction on several commodities – corn, wheat, beans, cotton, precious metals.

Quantitative easing is a Fed tactic that fundamentally weakens the U.S. dollar and thus creates an inflationary environment. A weaker dollar and inflation are bullish for grains.

QE2 ended on the last day of June this summer. We saw a broad-based sell-off during June, likely in anticipation of QE2’s end. (As a note, the normal seasonal on corn usually shows a sell-off on the last half of the month.)

On July 14, Fed Chairman Bernanke sent commodity markets higher during senate testimony on the economy when he said the Fed would act if the economy weakened, read: implement QE3. The very next day, he clarified his comments by saying the time for stimulus hadn’t yet come. Markets immediately corrected.

Would a QE3 be a solid indicator of higher prices? There are a few possible scenarios for you to consider as we all wait for Bernanke’s next QE move.

One, Bernanke is bluffing. The Fed won’t print more money, causing markets to grind lower as sellers look back over their shoulders. Two, the Fed implements QE3, the market loses confidence and a sell-off ensues. The rationale here is if the Fed is compelled to do something, the markets will conclude the economy really is weak and wonder, if QE1 and QE2 weren’t enough to start a sustained recovery, why would QE3 be any different? Three, we get QE 3, the market gains confidence and commodities go higher.

It’s difficult to say which, if any, of these scenarios will play out. I wouldn’t assume a third stimulus would have the same effect as the first two. The key point here is to remember there’s no way to know, which makes planning for all possible scenarios critically important. That way, if cries of "wolf" sound, you won’t be tricked and find yourself on the wrong side of the market.

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 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 2011 Stewart-Peterson Inc. All rights reserved.