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March 2010 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Resolutions Revisited

Mar 30, 2010
Back in December I encouraged you to make the New Year’s resolution to not be frustrated by the markets in 2010. Have you since then asked yourself important “what if” questions, such as:
 
  • What if we encounter severe drought?
  • What if the market goes down a little or down a lot, up a little or up a lot?
  • What if it moves sideways?
  • What if China buys or stops buying?
  • And, what could happen that I haven’t thought about?
For some, frustration may already be mounting in the form of wet fields. While this in and of itself may not materially impact your marketing, it’s one more potential frustration that you can’t control. Any time of the year, weather can bring about frustration. The late harvest and the problems it caused are fresh in our minds. In fact, an unfortunate group of producers is still dealing with un-harvested crops.
 
It’s impossible for you to control any of the influencing factors that have been talked about in this blog—global markets, ethanol industry strategies, USDA numbers and more. The good news is, with a nod to Julius Caesar, you can control what you’ll do about those influencing factors if you ask yourself the crucial questions and prepare for the possibilities.
 
Julius Caesar is regarded as having been a brilliant strategist. He is known for considering unexpected possibilities and developing contingencies for them. I encourage you to take the same approach. Lay out all the possible scenarios that could impact markets and come up with strategies to address each of them. Survey your “battlefield” and determine in advance what could happen and prepare for it. If you do so, you’ll be well on your way to taking control of your marketing and avoiding frustration.
 
A great marketer will end up preparing for many scenarios that will never come true. This shouldn’t be interpreted as a waste of time. Focus on the end result, which is that at least one and probably more of the scenarios will come true. After all, you’ll be prepared to take advantage of them. You’ll be positioned to capture opportunity and protect against the potential killer loss.
 
You could say that Caesar suffered the killer loss. Apparently, he had not prepared for the possibility of his assassination. Ironically, neither had his assassins been strategic in thinking about how Caesar’s death would change the Roman Republic. This certainly shows that being prepared for the all possible outcomes is important!
 
History aside, if you haven’t asked yourself the tough questions and determined how you’ll prepare, you can still resolve to not be frustrated by the markets. It starts with this question: Would you rather guess where prices might go or be prepared for whatever the market might do?
 
 
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 2010 Stewart-Peterson Inc. All rights reserved.

Why planning for crops is similar to selling them

Mar 15, 2010
I was having lunch at a Top Producer program when a grower with a very large operation asked me a really interesting question. Why are so many producers hesitant when it comes to marketing and how come they struggle so much with marketing?
 
So, I asked him . . . Do you put a huge effort into planning and organizing field operations so you’re well-prepared to get the crop planted and then harvested? He said yes . . . definitely. Do you, I asked, have to make multiple layers of decisions, all related to each other . . . such as various chemicals, fertilizers, equipment, field conditions? He answered with a definitive Yes!
 
Lastly, I asked him whether he believed producers made isolated decisions when it came to marketing the crop they work so hard for. Are most marketing decisions made in isolation, and not part of a comprehensive, multi-layer approach? He said most are likely made in isolation. He knew he had just answered his bigger question of why farmers struggle with marketing. What he realized was this: To do a good job with marketing, you have to approach it like you approach planning your field operations.
 
When preparing to grow crops, you look at the big picture and make decisions in advance. You prepare for any number of potential variables—weather, equipment, inputs—that might cause you to make adjustments as you work to maximize your harvest. Same goes for marketing. You have to make a lot of decisions in advance to prepare for uncertainties.
 
Isolated decisions make producers hesitant and leave them dissatisfied. Let’s say a producer has 500,000 bushels and decides to sell 5,000. Having struggled to make this one decision, he feels relieved to have pulled the trigger and goes back to work. He shifts his focus away from marketing for awhile. The problem: That’s only one percent of the crop. A 1% sale will make almost no difference at all.  Having made such a small sale actually hurt because it allowed the producer to think that he could shift his focus to production. However, marketing was not yet finished. The point is, you can't think of one sale or just a few of your bushels. You need to be thinking about all of your bushels, all of the time.
 
In the spirit of the recent Academy Awards, think of marketing like the film Avatar—view marketing as three dimensional. Marketing has depth, width and height. It’s a matrix of decisions that are all interrelated. Just like the multi-dimensional impact of fertilizer, seed, chemicals, weather, etc. in growing crops. Every marketing action produces a reaction. Strategic marketing involves layers of decisions. It’s dynamic. You’re thinking ahead to how you will execute if the market goes up a little or a lot, or down a little or a lot. You’re preparing for every possible scenario, something we do through Market Scenario Planning.
 
I encourage you to look at the big picture, prepare for uncertainties and make multi-layered decisions in advance. You’ll be more satisfied with your marketing.
 
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 2010 Stewart-Peterson Inc. All rights reserved.

Profit margins affected by high oil?

Mar 09, 2010
In my February 5 blog, anonymous at 1:25 p.m. made a case that disruption in Iraq’s oil supply years ago cost everyone a lot of money. To anonymous: I wholeheartedly agree with your macroeconomic analysis. High oil prices and high inflation break the back of the economy and hurt farmers in a big way. We’ve seen it happen before and, I think, oil and inflation will continue to be a major factor in disrupting economic growth in the future. It’s just a matter of time until we see $200 crude. In fact, I don’t think we’ll break our dependency on Middle Eastern oil until it really costs us and we’ve all got solar panels and electric cars.
 
While I agree with your overall macro analysis, I would advise against the approach of avoiding forward selling on the hope of upside opportunity, due to the expectation of a long-term bullish trend. I recommend using your bullishness as a filter. Rather than a blanket no-forward-sell strategy, you might try being selective . . . decide you’re going to forward sell at really good value after a substantial surge or when prices look good and the trend turns down . . . and at the same time have a buy-back strategy in place.
 
If you take the attitude that you’re not going to forward sell because we’re in a long-term bull market you might be wrong for two or three years at a time, which could cost you substantial opportunity until you’re finally proven right. Instead, when the market gives you opportunity, price it and have a buy-back strategy in place. Again, I agree with your analysis, just not your approach.
 
Great marketing is strategic. Great marketing has layers of strategy and uses multiple marketing tools to position you for inevitable opportunities and risks. It’s three dimensional and looks like a matrix of decisions that are all interrelated—as opposed to deciding not to forward contract without having any other contingencies ready.



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 2010 Stewart-Peterson Inc. All rights reserved.

The supply and demand dilemma

Mar 01, 2010
When anonymous 1:25 a.m. responded to my Feb 5 blog by writing that producers might have only themselves to blame for over-production, it reminded me of an article I wrote 30 years ago. There have long been attempts to limit production to support prices. It’s not a good idea, not to mention it hasn’t worked. The more we limit production the more we put this country at risk. Our abundant food supply is a key factor in our economic and military power. This is not to suggest producers must carry the United States on their shoulders. It’s simply a relevant truth. If anything, the job producers do should be a huge source of pride.
 
More to the point is the question of supply and demand. Many industries overproduce to the point of unprofitability. It’s not just agriculture. The auto industry is a shining example. Yes, over-production is real and causes problems.  The way to deal with it is not by producing less.
 
Ask yourself: Are you farming enough to justify the machinery you have? Have you invested too much? What is your cost structure compared to others? There have been a lot of profits in farming over the years. Admittedly, if you’re in western Kansas or eastern Colorado, or a place like that, it was tough to make any money during the long drought years. On the other hand, there’s been some good money made by central Corn Belt farmers. The point is simply that producers shouldn’t blame themselves for overproduction. Instead, if they’re frustrated by it, they might look at a different solution. There are universities and accounting firms that can help by looking at comparative record-keeping and figuring out where in your operation you could or should be more profitable.

Of course, being a little bit interested in marketing, I am always inclined to suggest doing a better job of managing both the opportunities and risks the market offers. Producers are certainly leaving more than a few dollars on the table. When I think about the amount of equity and profits that producers miss out on every year due to missed opportunities, it's no wonder people are frustrated by USDA reports.
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