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Know Your Market

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Dairy trading experts offer strategies and practical perspectives to optimize market performance.

Evaluate Your Dairy’s Marketing Plan

Mar 17, 2013

Before spring planting begins, make sure your dairy’s marketing goals are SMART: specific, measurable, attainable, realistic and timely.

By Kristen Schulte, Iowa State University Extension Farm and Agribusiness Management Specialist

 Kristen SchulteWithin the next month, many producers will be trading in office time for tractor time as field work begins. In the last few days before spring arrives, take the opportunity to review and evaluate your marketing plan for the past year. It is important to evaluate all parts of your marketing plan from goals to pricing strategies and scenarios.

When evaluating marketing strategies and planning, it is important to know the financial position of your dairy, feed inventory and purchase needs, and cost of production. These will help to identify what commodities and how many contracts to include in the marketing plan and the best pricing alternatives. A plan should assess both milk revenue and feed input costs.

A good place to start is reviewing your marketing goals. When you start with the end in sight, you are better able to prepare a plan. Are the marketing goals for your operation SMART: specific, measurable, attainable, realistic, and timely? These guidelines can also apply to the pricing scenarios and related triggers you outline in a marketing plan.

When assessing the pricing methods used, evaluate the success of the methods and which worked for your farm during the given market situation. Follow that question with what you would change in the future based on the current or changing needs and what will work for your operation.

emember not all pricing strategies are the same as some fix price, others protect from downside risk, some set a minimum and maximum price, while others offer insurance protection on the margin between milk and feed. What strategies work for your dairy? Does your financial position or knowledge of the product influence the success of a particular strategy?

Does your plan address different scenarios based on price movements in the market? Do you have triggers in place to accommodate these price changes? Do the triggers identify the price points and percent of commodity priced for each scenario? Discussing all potential scenarios and options helps to build confidence in a marketing plan especially in uncertain times or volatile markets.

When evaluating your plan and follow-through over the past year, also evaluate how the market changed in the past year. Did the market change as you expected? How did you react in regards to marketing? Do you need to add additional scenarios and triggers into your marketing plan based on experience?

When evaluating historical prices, remember they help to paint a picture of what has and could happen while the futures market gives us an estimate of price based on current information and expectations of future events and how they all interact together in the market place. Both can be good indicators of what can happen, but remember no one can predict the future; these prices allow us to become educated and formulate scenarios.

From your market plan evaluation, outline what you can work to better understand or new price strategies you will try in the coming year. Also make note of what changes you will make relating to scenarios, strategies, and triggers.

Remember there is not one strategy for everyone--each operation is different. Each will have its own goals, margin to protect, or cost of production to cover. Depending on the operation’s financial position or cost of production, operations may see opportunities in the markets at different times. Each farm’s plan should be individualized and unique to their situation.

As with any other task in work or life, it takes diligence and continued dedication to become comfortable and excel. Do not give up if something doesn’t go as you expect. Keep trying. With the right individual (or individuals) on your team, continued research and education on options and the markets, and re-evaluation of your marketing plan, you can utilize a variety of marketing strategies to achieve your goals and help your business become more sustainable.

Kristen Schulte is an Iowa State University Extension farm and agribusiness management specialist. She can be reached at 563-547-3001 or kschulte@iastate.edu.

ron mortensen photo 11 05   CopyComments by Ron Mortensen

The reality of trying to write or implement a marketing plan brings up the subject of emotions. Why?

No matter what is written down or how pricing scenarios are evaluated, marketing becomes an emotional job. There is joy or greed with profits, fear when prices move lower, disappointment when things don’t go according to plan and anger when outside influences (think the Great Recession) present insurmountable financial burdens.

The concept of being able to sleep at night helps in these turbulent times. This often means using a mix of marketing strategies to lock in prices for both your feed inputs and your milk output. If you cannot sleep worrying about margin calls, then do not subject yourself to them. Never used a futures or options strategy, which could generate a margin call? Don’t go all in—try out a small futures position first before making a larger commitment.

Ron Mortensen is principal of Dairy Gross Margin, LLC, an agency that specializes in LGM-Dairy products, and owner of Advantage Strategies, Ltd., a commodity trading advisor. Reach him at ron@dairygrossmargin.com or www.dairygrossmargin.com.

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