By Steven Schalla, Stewart-Peterson
I had a real treat this past weekend with a trip down to the local festival. We arrived just in time for the tractor pull, one of my favorite summer events. What’s not to love? Great competitors, great fans and more horsepower in one place than anyone knows what to do with!
Yes, there’s a tie to marketing here. To be successful as a puller, you have to be consistently on top of your game, and the same is true with commodity marketing.
Does your marketing have the horsepower to pull the financial load on your dairy operation? After the last 18 months, you’ve likely got a heavy load to haul and much financial ground to regain. Many folks have watched equity erode. Consequently, many have been forced to stack extra debt onto their financial sleds. Horsepower in their marketing efforts has never been more important than now.
In addition, every farm has financial goals it would like to move toward. Whether it’s chipping away at the debt load, stabilizing the cash flow situation, improving facilities or becoming a more competitive bidder on cows or land, the marketing decisions you make (or do not make) can seem increasingly stressful and might even weigh you down further. You may have family or partners in the business who are counting on you for their financial livelihood, adding extra weight to the already difficult decisions at hand.
So, what kind of tractor are you hooking up to pull your financial sled? Is it running at full power? If you’ve ever been in a vehicle that has lost a cylinder, you know right away that something isn’t right. It will still run, but the ride is rough, frustrating, and the overall performance is dismal. I hope this doesn’t describe your marketing experiences. If you haven’t made a full commitment to marketing, you’re probably sputtering.
Here’s why: Good marketing is not an occasional activity. You can’t choose to market only when prices are “good” (or only when they are “poor”) and expect consistently good performance. It takes a steady effort to pull the load.
Case in point: This spring, many producers who may have been doing “a little marketing” (i.e., using “a couple cylinders”) have been frustrated by futures prices dropping off as each month came to a close. With great anticipation, they saw $15 prices in December, then $14 in February and near or below $13 when the milk check finally arrived. As prices were falling, the stress began to build for these producers, who were hopeful that prices were recovering. Now memories of the lows of 2009 weigh heavy in their mind.
Contrast this mindset with the producers who have a structured approach to marketing in place and who have run some price scenarios in advance of this market drop. They know the price triggers at which they are going to take action, and they have determined, before the emotion of the price fall sets in, that they will take action at those price points.
The producers who have gone through this process with us have been prepared with specific points to act and were able to proactively make forward sales or hedges as prices softened. While still having a certain percentage of their milk open to higher prices (based on their risk tolerance and other factors), they were able to cushion the price declines for a stronger weighted average price.
Lenders and financial consultants are telling us that good marketing is part of the consideration when evaluating whether a farm has the financial wherewithal and management capabilities to sustain a loan. Having a consistent marketing approach in place can, for example, reduce the amount of working capital lenders require.
My analogy continues: Consistency is a characteristic of good dairy management, as well of good competitive tractor pulling. Good pullers love to win, and they also recognize that a top 3 or top 5 finish is a solid result. For competitors in a season-long circuit, it is critical to be consistent week-in and week-out. A good strategic marketer has the same mindset.
My analogy is nearly out of steam. But I hope I’ve sparked some thinking that will help you and motivate you to add some horsepower to your marketing efforts, to work toward your own long-term goals.
Steven Schalla is a Market Advisor for Stewart-Peterson, Inc. He can be reached at 800.334.9779 or firstname.lastname@example.org.
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