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.