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May 2009 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Greedy or Opportunistic?

May 29, 2009
I’ve been saying that the secret to overcoming the pitfalls of market information and market analysis is to learn to apply strategy rather than outlook to farm marketing. Good, strategic marketing is managing both risks and opportunities. It is not predicting prices. It is not trying to outguess market action. It is not day trading. It is not pricing 1,000 bushels of your crop at the top of the market and then bragging about it to everyone while 99 percent of your crop is sitting in the bin as prices fall $1.00 a bushel.
It is all about consistency and maximizing the opportunities the market gives you.
Far too often, producers have been taught that they shouldn’t be greedy and should sell at a reasonable price level. Unfortunately, farm prices spend way too much time at unreasonable price levels to make it possible to only accept a reasonable price level. When the market offers you $5.00 for corn, $12.00 for beans or $90.00 for cattle, you want to own something to sell at those prices. Preferably, you want to own a lot to sell there. That is your opportunity to get ahead or catch up or to expand or to bring one of the kids back into the operation without taking on a lot of extra debt. It is your opportunity to make up for those years where prices never offered a good return.
This is not greed; it is good business.
That is why opportunity management is just as important as risk management in marketing. When the market offers you $5.00 for corn, you need to take advantage of that on a lot of your crop, if not most of it.
So, what have you done recently to capture the most from corn price rallies? This time of year, through the end of June, is typically the best time to price a significant portion of your crop. When I say significant, I mean one third of it or more—even two thirds-- by the end of June. You can always use tools that will allow you to re-own a portion of that crop if the market offers more later, or to cover against the risk of an undersized crop. In an upcoming post, I’ll talk about the strategic use of these tools. Let’s stick with the big picture for now.
Farm marketing needs to be about consistently taking out of the market as much as you possibly can, and covering yourself against risks. You need to consistently be a better marketer than your neighbors because, ultimately, in this farm economy, only the most prosperous will survive. You need to be the producer in a position to afford a new piece of equipment more easily than the average farmer. You need to be able to write out that rent check more easily than the average producer. You need to be able to weather a bad yield year more easily than the average producer. Only those who consistently produce margins above and beyond the average will prosper and grow in the long run.
I know this is not very warm and fuzzy, but I am passionate about helping producers be successful, and I want to say it to you straight: Take the time to develop a consistent approach to your marketing, and you will be able to maximize opportunities as well as manage risks.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis.

Who Cares What the Market Does?

May 12, 2009

You may have surmised from my two earlier columns here that I am not fixated on analyzing what the markets are going to do on a day-to-day basis. I learned this early on in my career, as I watched other much more experienced, highly paid analysts labor over market analysis and still end up wrong more often than not in their predictions. People in this business can be paralyzed by too much analysis.

It pains me to see producers get trapped in this kind of thinking. But we’ve grown to believe that more information will make us better marketers. So ingrained is this thinking that, for many producers, one part of our brain is at all times engaged in wondering what the markets are doing and how we should react.

I’m afraid I have to use a shocking phrase to get your attention away from all the market chatter: WHO CARES WHAT THE MARKET DOES?

Does this sound ridiculous coming from a senior market advisor? Maybe. Believe me, I do spend time analyzing markets, trends, and factors that push the market higher and lower over periods of time. But I am determined to help producers focus on the real issues, not the chatter.

The real question is, are you prepared for whatever the market dishes out?

Great strategy is pre-planning your actions so that each market action triggers your action. Plan for how you will act if there is a price rally. Equally important, plan what you will do should prices fall. What tools will you use? What are your trigger points for action? Think about these things, and your work day becomes less about seeking out the latest market news and more about strategizing for your future. Doesn’t that sound appealing?

Does that sound more structured? More consistent? More disciplined? More professional? More likely to work?
Less stressful?

More on how to do this in my next posting.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis.

Separate the Chatter from the Valuable Grain

May 04, 2009

I recently read Jim Collins’ popular business book, Good to Great. In it he says, “The good-to-great leaders were able to strip away so much noise and clutter and just focus on the few things that would have the greatest impact.”
Allow me to help you remove a few common distractions from your busy work day. After all, you’re trying to plant and nurture a crop. You want to avoid distractions.
In the age of satellite and cable TV, internet access and cell phones, it is very easy to be too well informed on what the markets are doing. Far too often people believe that a little more knowledge will make them better marketers. I believe, as I wrote in my previous Blog column, gathering too much information is misdirected effort.
There is usually one major fundamental factor driving almost every market. It might be a large crop, or it could be unusually big demand. It could be a drought or a disease. Whatever it is, typically this one dominant factor pushes prices up or down. This holds true for corn, hogs or gold. Identifying that one fundamental factor will give you the right perspective to take your marketing from “good to great.”
But if you are not careful, you can get lost in a flood of information. You listen to the radio, visit Internet sites, talk to everyone you know in the business and get all excited about the latest export number, slaughter number, news from China or Argentina, or whatever news is being played up for the day. Almost all this talk is insignificant noise. Most of it is a distraction, getting in the way of you seeing the big picture.
It is no different than the stalks and husks you have to run through the combine and spit out the back in an effort to harvest that very valuable grain. When it comes to market analysis, the valuable grain is the one major fundamental driving the trend. All the other information is just husks and stalks, meant to be trampled down and ignored.
Let me give you an example to drive the concept home.
For as long as you have been farming, can you remember a time from January all the way to May when you did not hear constant chatter about acreage estimates for corn and soybeans? Will acreage be up? Will it be down? Will there be a shift from corn to beans? For the amount of time and pages of print they devote to the talk of acreage, you would think acreage is one of the most critical factors in determining the price of a crop.
But look back over the corn and soybean charts for the last 30 years. Compare where acreages climbed and where acreages dropped and see if there is a correlation between high prices and low prices. You will find that there is no correlation. Unless the U.S. government stepped in with some acreage set-aside program that artificially took massive amounts of acreage out of production, acreage just hasn’t been a factor. High prices are associated with bad weather, low yields and, in some instances, demand. Low prices, on the other hand, are consistently tied to big crops.
Everybody gets all excited about a million-acre swing in corn plantings. What does a million acres translate into? At 150-bushel corn, it’s 150-million bushels. First, if you look at the statistical variance the USDA places on its own estimates, a 150-million swing is well within the error tolerance they leave for their own predictions. Second, 150 million bushels can easily be added onto the crop by just one good rainfall moving across the central Corn Belt.
The bottom line is, when we are talking about crop size, it will take about 500 million bushels difference in the corn crop to have a significant impact on the outlook for prices. Typically, acreage variances do not do that; weather does.
I am not writing this simply because I am a contrarian; I am writing this to help busy producers who might be frustrated by information overload to focus on what really impacts your marketing outcomes. When the ground is ready to plant, you don’t spend time and effort waxing the tractor. You get out there and focus on what matters. Do the same with marketing. Don’t get distracted.
What should you be focusing on at this time of year from a marketing standpoint? Your marketing strategy. What selling decisions, at what price, will trigger you to take action? What tools will you use to protect yourself against a price drop, or allow you to take advantage of an upward price move? What are you going to do if the market goes up a little, up a lot, or down a little, or down a lot? More on great strategy in the next column. Happy planting!
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