Know Your Market
‘Elite Producers’ Are Challenged by Marketing Too
Nov 13, 2011
Even “elite” producers are challenged by today’s markets. Here are the most common comments and questions I heard from producers at Dairy Today’s Elite Producer Business Conference.
By Steven Schalla, Stewart-Peterson
Last week I had the privilege of attending Dairy Today’s Elite Producer Business Conference and visited with many of the country’s top dairy producers.
The conference had many engaging and informative speakers, and I’m happy to report that some of the top economists in agriculture see a bright future for the U.S. dairy industry. These analysts continue to see immense opportunities to grow dairy exports while working to maintain our domestic consumption as well.
However, these same economists also warned that markets that are increasingly dependent on foreign participation bringing additional risk in currency fluctuations and government trade policies. Thus, they said, being prepared for volatility through a strong financial position and risk management will be critical for producers who want to be part of this dynamic world economy.
In talking with producers between sessions, it is easy to see that this kind of thinking is already underway. Many producers talked about how they’ve improved the tracking and reporting of the farm’s financial benchmarks. This not only keeps a lender happy, but also has provided some new insights as to where the operation can improve or grow to maximize profitability.
The second part, the risk management part, has been a bit more challenging for producers. When I asked many folks about their experiences with marketing over the past few years, the answers were largely textbook frustrations of first-time experiences. Here are a few of my favorites that are easy to empathize with:
- “I started following prices for awhile but I got busy with stuff and just didn’t have the time to keep up with it.” While managing the rest of the operation, it’s easy to understand that finding time to follow market prices, then design a marketing strategy, then execute and maintain the plan, is very difficult to do. To be a successful marketer, it takes daily review of market developments to assess the opportunities and risks they present to your dairy. This producer needs to make the full commitment to making marketing a daily task, or he could seek a trusted advisor that will be his “eyes and ears” and design specific strategies for the producer to review.
- “I check market prices every day, but you start talking about all these different strategies and I get lost so fast. . . .” Mastering the basic marketing tools requires practice and experience. Moreover, volatile dairy and grain markets are making it necessary to use more advanced strategies to maintain flexibility and lower upfront costs. This producer is on the right track by focusing time on learning the marketing tools and strategies instead of pursuing the “right” market outlook. Learning when to use each marketing tool, or several in combination with each other, will allow you to take advantage of price opportunities while still removing risk.
And here’s the quote with which I empathize the most:
- “Dinner is pretty quiet when I’ve contracted some milk and it goes up two or three dollars and we’re paying margin calls.” Wow, talk about an uncomfortable situation. There are two things that grabbed me in this comment: First, managing the emotions of entering and maintaining strategies is much, much easier said than done. Second, pressure from family members or partners, who do not understand the process or the underlying goal, can compound the frustration. We’d encourage this producer to stick to his strategy and long-term goals. However, a key step will be to reaffirm the risk tolerance of the family and management team to avoid a sticky situation like the dinner described here. By understanding the long-term goals and what is required to reach them, the team can support making the tough marketing decisions, building confidence instead of casting doubt.
These producers and many others shared that they want to succeed as marketers and risk managers. All the common constraints have limited that success. Each of these producers experienced different challenges. Identifying the constraints that hamstring your success is the absolute first step to improving results.
Next, create clear goals that the management team supports to address these challenges. This will set the stage to confidently execute strategies. Keep in mind, not only can you share financial goals, you can also share the responsibilities for reviewing the markets daily, or teach your partner useful concepts, like what a “margin call” involves.
Using these achievable steps will make it easier to boost confidence in your marketing efforts and see the bottom line results you desire.
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