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September 2009 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Don't Let Emotion Be Your Guide

Sep 28, 2009
My last post on earning the confidence of your lender touched a nerve for some… which confirms yet again what we all know to be true: People get emotional about marketing. And taking emotion out of your marketing is one of a few time-tested keys to marketing success. 
 
To be a successful marketer, you need to lay out your strategies in advance in an unemotional way. Imagine all the possible scenarios:
 
“If the market goes up a little, I’ll do A.”
“If the market goes up a lot, I’ll do B.”
“If the market goes down a little, I’ll do C.”
“If the market goes down a lot, I’ll do D.”
 
A strategic approach includes detailed plans to act in each of these scenarios. It’s best to do all this groundwork when the market is closed. This helps you focus on the longer-term perspective and avoid the emotions and anxiety of market action hour to hour, or even daily swings. Making decisions during trading hours fuels emotion and causes knee-jerk reactions.
 
Once you’ve decided what you want to do, just get it done.
 
Too often, people spend months planning to use a certain trigger signal to make a sale or a repurchase. Then, when the signal is hit, they look at the market and decide to wait until the next day’s open to see if it opens higher or lower. If it’s up, they decide to do one thing. Down? They do another. My recommendation: When your sell signal triggers, place your order on the next day’s open, at the market. Just get it done!
 
Think about it. Let’s say a sell signal triggers on a Tuesday at close. Wednesday, you’re going to go short futures. If on Wednesday the market opens lower, is it a poor place to get short? Or is the market bearish, meaning you should get in immediately? Or, let’s say the market opens higher and your plan was to sell. Should you wait? Will it go higher? Is the higher open a temporary gift? You can’t know for sure.
 
The point is, no matter what the open, if you’ve made a prior decision—in an unemotional way when the market is closed—then execute. Get it done. Statistically, if you consistently place your order immediately on the open, regardless of a higher or lower opening call or opening price, on average you’ll get the average.
 
If you consistently do this, in the end you should be fine. If you inconsistently apply your strategy and try to outguess the market action, emotion takes over. When the market is most bearish (and you need to be sold), you won’t sell because you won’t like the lower open. When the market opens higher, stalls and then collapses, you’ll freeze, waiting for a higher price to return. If the market continues collapsing, you’ll keep waiting.
 
I get all worked up over this because I know this happens all the time. When asked, producers admit to doing it, and they’re frustrated. Here’s evidence:
  • Look at Top Producer’s survey of Marketing Sins in the December 2008 issue: Consistently, more than 30 percent of respondents tended toward inaction during market movements because they thought the price would go higher, or lower.
  • Consider the survey we did at a seminar in Iowa last week. When we asked attendees what they wanted to improve about their marketing, “Adding more discipline” and “Taking out emotion” were the top responses.
In summary, lay out your marketing strategies in advance and when the market is closed. Then when your buy or sell signal is triggered, get it done. Don’t allow emotion to guide your marketing decisions. You'll feel better about your marketing and position yourself to succeed.
 
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com, or visit www.stewart-peterson.com .

Earn the Confidence of Lenders

Sep 16, 2009
If you are like most producers, the relationship you have with your lender is very important. There certainly are a few producers in a strong cash position who never have to darken the doors of a bank. For many producers, though, bank financing is an integral part of the operation.
If you have not already talked to a banker about financing for hedging, options purchases, or for hiring a marketing consultant, be forewarned. Some bankers are not going to be too keen on the idea. And you know what? You can’t blame them.
Your banker's experience has likely shown that people who trade futures and options lose money. Their producer customers don’t have a structured, disciplined strategy, they don’t implement a consistent approach to marketing, and too many end up speculating. Or should we call it “hedgulating?” Seeing this happen gives bankers reason to be leery.
When you talk to your lender about your marketing (or your spouse or whoever else may be judging you), think about this: The better prepared you are, and the more comprehensive your approach, the greater your chances of success will be. 
Here are some suggestions to help you earn the confidence of your lender:
1.       Set goals for your marketing. For example, help your lender understand that you are trying to accomplish a high average return per bushel over time for the sale of your crop. This will help ease your lender's concerns.

 
2.       Choose a reputable advisor or consulting team in which you and your lender can have confidence. 

 
3.       The advisor you choose needs to take the time to understand your needs and tailor the marketing approach to your operation.

 
4.       Be sure that advisor takes a strategic approach, laying out strategies that manage market opportunities and risks in both up and down markets. Avoid outlook-based marketing. (See my earlier posts on the difference between a strategic and an outlook-based approach.)

 
5.       Once your marketing strategies are laid out in a structured way, have the discipline to follow that structure. Do as you plan to do. That will build confidence and respect with your lender.

 
6.       Be sure to have a budget for your marketing. (See my last post on this topic.) Doing so will ensure that you are making good business decisions, not emotional ones based on cash flow.
 
Marketing can be done well. Your lender can play an active part in the process. It may not be easy at first. With a comprehensive structure in place, however, you can expect to feel more in control and confident in your marketing.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com, or visit www.stewart-peterson.com .

Marketing is an Input Expense

Sep 01, 2009
In my previous post I wrote about ways to cut option costs. What can really be helpful is looking at the big picture with regard to marketing expenses.
 
The big picture truth is this: Marketing is an input cost, and should be viewed the same way you view other inputs on your farm operation. You can’t do without fertilizer or chemicals, and cutting back on these important inputs usually leads to lower yields and reduced revenues.
 
The same is true for marketing. Farmers who actually have a budget for marketing free themselves to make better decisions, and they harvest the rewards from this more professional approach.
 
This has been a year of cost-benefit weighing with regard to input expenses. So let’s do a cost-benefit analysis of a marketing situation you may experience:
 
There are a great many ways in which producers can go about their marketing to better manage risk. One of the most simplistic ways is to use puts to forward price part of the production, and forward contracts to price the remaining percentage of production. Crop covered with forward contracts can be covered with calls to take advantage of a market rally should a substantial price move occur.
 
Assuming a cost of 16 cents per bushel for puts, 150 bushel-per-acre corn would equate to a $24 per acre input cost. If you capture 50 cents of a price move, the return will be $75 per acre. (50 cents is the minimum December futures move from 1993 to 2003. Recent years certainly have been more volatile and have offered more opportunity, and risk.) That is more than a 3:1 return ratio.
 
At the same time, if a bull market develops and a substantial price rally occurs, calls could return as much as $2 per bushel, for the equivalent of $300 per acre. That is a return ratio of well over 10:1.
 
When you consider the escalating costs of all farm inputs, the returns per dollar invested in marketing compare well to the returns of other input costs. Yet many producers find it very difficult to write the check for the marketing expenditure. A field without proper fertilizer or pesticide application is obvious to its owner and all the neighbors. Every day that you drive by that field, you are reminded that you should have done a better job.
 
For some reason, marketing expenditures seem more optional! That's because there is a chance prices may go sharply higher, and having done nothing will be the best alternative. In the past, if prices went lower, the farm program was there to rescue you. The cost of taking that risk is much greater now, and will be much greater in the future. Missed price rallies can be just as expensive as pricing and selling too low. The extra income obtained from pricing properly in a bull market may be critical to the long-term survival of many farms.
 
It’s time to adapt to meet these challenges. Lay your strategies out in advance. Don’t try to guess where the market will go. Invest in marketing, and expect a reward for marketing done well.
 
There’s also another key benefit to thinking this way: A marketing budget puts you in control to make good decisions. Without a budget, cash flow and emotions may control you and limit your ability to follow-through. Take the emotion out of your marketing. Have a budget, be strategic, and confidently expect to see the rewards for your strategy and discipline.
 
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing education and advisory firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com, or visit www.stewart-peterson.com.
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