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June 2010 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Does a Man Get Pregnant? You Bet.

Jun 27, 2010
Guest blogger Jacquie Voeks is a senior market advisor with Stewart-Peterson. She grew up on a family grain and dairy farm in southeastern Wisconsin. As some grain farmers will tell you, Jacquie offers a unique perspective on commodity marketing.
 
I’ve had the privilege of speaking to thousands of producers over the years, whether facilitating marketing education, helping clients or simply sharing stories about our families and farms. Understandably, I get a lot of questions about marketing. For me, none quite compares to “why is it so hard to sell my crop?”
 
Eleven years ago, at a Missouri Corn Growers Association meeting, a producer asked me this question. I’ve been giving the same answer ever since.
 
First, let me say that I grew up on a farm. I’m also a mom, which means I understand a thing or two about emotional attachment. For me, the reason it’s so hard to sell a crop is obvious: Your crop is your baby.
 
Does that sound crazy? If so, consider that you plant a seed and watch it grow. You nurture it. If it doesn’t feel well, you take care of it. You look at it with pride. So far, it sounds a lot like a baby to me.
 
Some days while pregnant with your crop, you wake up with morning sickness. Onset usually coincides with the market open, when prices do the opposite of what you expect. You curse ever having gotten pregnant with the crop in the first place.
 
Next year, you’re pregnant with another one. Again, you nurture it. You keep a close eye on it. If your crop ever gets in trouble, you get upset (but, you still love it).
 
When harvest rolls around, you’re anxious, because if something can go wrong, it will. Last year, many of you couldn’t get the crop out and ended up carrying it well past its due date.
 
Each year, you harvest your crop, put it in the bin and give it a pat. Good crop. Then comes the day your crop has to be delivered. It’s not unlike the first day your baby gets on the bus for kindergarten. It’s so hard to let go, isn’t it?
 
I understand the emotional attachment. Your crop is a reflection of your expertise and hard work. You invest significant time into growing it. I’d be proud, too. Unfortunately, emotion and great marketing do not mix. When it comes time to sell your crop, you’ve got to be emotionally detached. You’ve got to be cognizant of why you’re making certain decisions . . . or not making decisions.
 
The best way to keep emotion out of your marketing is to think strategically and plan ahead. Consider all possible price scenarios and decide ahead of time what you will do if those scenarios come to pass. This way, you can execute without getting caught up in the moment.
 
It’s hard to do, I know. But, then, no one ever said taking care of a baby was easy.
 
 
Jacquie Voeks is a senior market advisor with Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Jacquie at 800-334-9779, email her at jvoeks@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.
 

Disaster Planning - Part 2

Jun 21, 2010
I just had to respond to one of my reader’s posts because I read some worry and perhaps cynicism in his or her question, and I wanted to reassure as best as I could. To Anonymous 9:34, here it goes:
 
If you are concerned about the long-term prospects for American agricultural commodities, broadly speaking, the outlook is good. There is a hungry world population to feed and, at least near-term, demand for alternative ag-based fuels to explore. The American Farmer never ceases to amaze me with the ability to produce to meet demand. That said, I know marketing in an uncertain world brings its challenges. For many farmers—experts at production and not so interested in marketing—these challenges are unwelcome. Yet I believe that marketing is as important a management frontier to tackle as is pest management or any other production technology you may learn.
 
As a general rule, marketing budgets should be about 10-15 percent of the value of the crops they are protecting. That’s our basic recommendation. The nice thing about the Market Scenario Planning approach (as I described in my last post) is that many times a solid scenario plan that takes care of the most practical price possibilities also works really well for the disasters.
 
Take this year for example. Using various technical and cycle analyses, "bad news" for corn this year is any of the technical objectives between $1.94 and $2.35. (I know most people may argue that any price lower than current prices is a disaster.) A sound strategy currently might have one covered to the downside by 80 percent or more on the current crop and 10-50 percent on the 2011 crop.
 
Let's say we look at the 2010 crop and it is 80 percent covered at $4.00 futures price. A $1.00 drop to the $3.00 price level prices out your entire crop at $3.80 ($4.00 on 80% and $3.00 on 20%).
 
Let's say the market keeps dropping to something extreme, say $1.00. So what is the outcome in that case? Your average price is $3.40 on all bushels when corn is at $1.00 (80 percent at $4.00 and 20 percent at $1.00). Not a bad price for that situation. It was the fact that you had 80 percent covered in some way (cash, futures, options, etc.) that gave you the preparation for “whatever” to happen. The last 20 percent is not going to have a major effect on your average price.
 
Remember to structure the tools you are using so you have the same potential on the topside, and that makes your weighted average price flexible, allowing you to handle whatever the market throws at you in a very reasonable, cost-effective manner.
 
 
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.

BP Disaster: A Lesson in Planning

Jun 11, 2010
I find it difficult to watch oil gush from the bottom of the Gulf of Mexico. It’s an enormous tragedy that people died, wildlife is dying, our waters and beaches are turning dark, and the livelihoods of so many people are getting crushed. Further, it’s an outrage when you hear this disaster was preventable. The people responsible neglected a key business principle: planning for all possible disaster scenarios with deep-water drilling.
 
Businesses that avoid planning for the worst cases are taking chances in order to save time and money. Yet, when the worst case becomes reality—especially on an oil rig 40 miles from shore—the costs are far higher and can extend far beyond money.
 
I’ve written before about the Market Scenario Planning approach we take to deal with uncertainties. The process is based on military scenario planning concepts that were first developed by the Romans. Of all people, it was an oil executive who adapted scenario planning to business and developed the planning system implemented by Royal Dutch/Shell in the late 1960s. By preparing for all possible scenarios, including some of the absolute worst possibilities, the company was able to effectively deal with the oil shock of late 1973.
 
There are news reports indicating that the BP disaster has roots in lax government regulation. This may be true. However, lax regulation is no excuse for taking undue risks. Excessive risk without contingency planning is a recipe for disaster.
 
Some might say markets can be a disaster. If the price of commodities is a factor that drives you out of business—as it was for many dairy producers in the past 18 months—it becomes a personal disaster.
 
Have you prepared for every possible scenario with your marketing? Remember that profits are lost in both worst- and best-case scenarios. When corn was $8 not too long ago, if you weren’t prepared to sell, you suffered a loss of profit opportunity. Losing profit, while not a worse fate than losing equity, is no less frustrating.

Losing out on $8 corn should have served as a wake-up call for the need to be prepared. You never know when the markets are going to give you opportunity or take opportunity away. In either case, when you're prepared to act, price matters less than the actions you take. You can't control price; you can prepare for it.

This week, we heard that President Obama wants to take somebody out to the woodshed, so to speak. His words were a little harsher. If and when that happens, will it make other corporate executives rethink their companies' planning?
 
I encourage you to think about your planning. Think through all the possible prices scenarios and what you will do should they be reached. The ongoing news from the Gulf is a good reminder to position yourself for opportunities and risks the markets will bring down the road.
 
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.
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