Sep 16, 2014
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Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Be prepared to take advantage of a possible soybean rally

Aug 04, 2014

 

Guest blogger Lucas Qualmann, researcher with Stewart-Peterson Inc., offers reasons why you can’t assume a bearish stance on soybean prices.

 

When prices drop, does it seem like you never have enough of your crop sold or hedged? The decline in soybean prices over the last two months has been significant. When prices rise, do you find you’re positioned to take advantage? An opportunity may be near.

 

Let’s look at exports and China, by far our biggest buyer. Two weeks ago, year-to-date sales to China for the 2014/15 crop year were off approximately 30 percent.  Additionally, total U.S. export commitments for new crop soybean sales were 3%, or 37.8 million bushels behind last year’s pace.

 

Then during the week of July 21, sales jumped. All totaled, we sold 90 million bushels to export customers. As of the week of July 24, commitments jumped 36.5 million bushels ahead of last year’s pace, or 1.1% ahead of the pace needed to meet the USDA’s current estimate of the 2014/15 crop.

 

It is clear that buyers see the recent $1.50 drop in prices as an opportunity. If this signals a change in the downward trend, $12 beans may look cheap again.

 

An exceptionally big week of sales is a common annual occurrence. In September of 2013, we sold 103 million bushels of soybeans. What if we have two or three weeks like that yet this year? We could easily cut into a 415-million-bushel ending carryout by selling 100 million bushels per week for two or three weeks.

 

We usually sell at least 50% of our exports between mid-July and mid-December, suggesting we can expect solid numbers for the next four months.

 

Let’s look at yield. The USDA currently projects a 45.2-bushel average yield, and the average estimate from the Reuters survey released on July 25 was 45.5 bushels. The previous record was 44 bushels in 2009.

 

If the yield this year matches the previous record of 44 bushels, production would be approximately 100 million bushels less than current USDA projections. If exports reach 50 million bushels more than the USDA’s current estimate (a 100 million bushel increase from this year’s USDA estimate), and the yield is equal to 2009, carryout could be as low as 260 million bushels.

 

Today, the market is trading at 415 million bushels.

 

What it all means is this: Try not to get caught up in the headlines that have many producers bearish on price. Consistently manage your price risk, and prepare for whatever the market may do.

 

If prices rise, you want to be in a position to take advantage. No one wants to look back at harvest, when prices could be lower, thinking "woulda, coulda, shoulda."

 

Scott Stewart is CEO of Stewart-Peterson Inc., a commodity price management  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 2014 Stewart-Peterson Inc. All rights reserved.

Do you turn from Dr. Jekyll into Mr. Hyde?

Jun 05, 2014

Guest blogger Lucas Qualmann, researcher with Stewart-Peterson Inc., shares his personal experience of feeling like Dr. Jekyll and Mr. Hyde when managing commodity price risk. He’s happy to report he has recovered from his affliction.

In 2013, I felt like I was two different people. I would spend my weekdays as a researcher, studying commodity markets and pricing strategies from a mathematical perspective. Then I’d head back to the family farm on weekends and become someone else.

My story actually begins a while ago, during the time I grew up on the farm. I learned a lot from my parents. My dad had always taken responsibility for selling our farm’s production, and so I learned how to do that from him. Like many other farmers, his goal was to get the best possible price, usually by taking cues from the weather and market news.

He’d often say things like, "When the price hits $X we’re going to sell everything in the bin." And, "Why sell now if we think the price is going to go higher?" 

Sometimes those commodities would hit their targets, and soon the talk would change to, "Let’s wait until it gets to $XX now, then we’ll sell." I went along with that thinking. Our decisions usually were reinforced by the news and perspectives from other farmers.

By the time 2013 arrived, I’d spent a lot of time in a different kind of environment. The people around me passionately preached strategy, discipline and consistent price management as necessary for success.

I likened my situation to that of Dr. Jekyll. At work I was consistent, disciplined and strategic in my thinking. When I went back to the farm on weekends, I became Mr. Hyde, unable to control my emotions and waking up the next day wondering whether I’d done something terribly wrong.

With the corn price setting records the previous summer due to the worst drought in 50 years, and believing that the approach my dad had been taking for so many years wasn’t the best, I finally put my foot down and convinced him to sell some corn in the winter and spring of 2013. (It’s not easy putting your foot down when you’re working with family.)

I didn’t know for certain whether it was the right decision. But I was confident that the corn price would eventually fall and that $7 a bushel meant a nice profit. While we didn’t sell everything at the highs, we did price most of our production before the massive price drop in summer of 2013, which is exactly when we would have been expecting prices to be at their highest based on what we were hearing from the news and other farmers. In this case, basing decisions on outlook would have proven disastrous.

Even if the price of corn rallied to new highs in the summer of 2013, my goal was to help my family build a strong average price over time and not focus on an individual sale or on capturing the market top. 

The way to do that is to become strategic and avoid focusing on price outlook. Pre-plan your decisions, stay disciplined, and know that planning is dynamic. Also, become an expert at using price management tools (forward contracts, puts, calls, fences, etc.). Or hire an expert.

If you decide to manage price on your own, you will need an objective. It ought to be building a strong weighted average price (WAP). WAP is the net average price received for your production, determined over the long term. Calculate it by averaging the value of priced grain per bushel, value of unpriced production assigned the current market value, and the value of any hedge positions.

WAP is a key metric for logically and unemotionally assessing your price management success. If at any time you feel (emotionally) as if you aren’t doing well, calculating your WAP will tell you how well your decisions have performed against the market price.

During the past two years, my dad has become a believer in planning for various price scenarios instead of focusing on market outlook. More than a few times, he’s mentioned how happy he was that we sold as much corn as we did in 2013. As for me, I’m just glad I no longer have a split personality toward the markets.

Scott Stewart is CEO of Stewart-Peterson Inc., a commodity price management  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 2014 Stewart-Peterson Inc. All rights reserved.

 

Price management isn’t madness

May 07, 2014

This spring’s NCAA March Madness tournament was filled with even more madness this year thanks to one of the wealthiest men on the planet, Warren Buffet. Buffet offered $1 billion to anyone who could correctly pick the winners of all 63 games in the tournament – a perfect bracket.

Fifteen million would-be billionaires were out of the running after just the first two rounds. How can it be that not one out of 15 million people got all 63 games correct?

Reports show a devoted college basketball fan’s probability of completing a perfect bracket is a modest one in 128 billion. For the average person not following Division 1 basketball’s every move, the number is even more staggering.

Buffet understands there’s no such thing as perfection when attempting to guess outcomes in something over which you have no control. He doesn’t seek perfection in his business. Rather, he looks for good opportunities, and he takes a long-term view when measuring success.

It’s not a good habit to look for perfection when selling your production. By this I mean attempting to hit the market tops or holding out in hopes of capturing a price that has come and gone. The real prize is in pre-planning pricing strategies with an eye toward earning a strong average price over time.

Buffet did his homework before risking a billion dollars. You should, too, before making sales on your hard-earned production. Following are four market factors to watch when planning to capture price opportunities and protect against risks in 2014.

  1. Demand Renewal. History shows when corn prices drop 50 percent, as they did from summer high of 2012 to the January low of 2014, demand recovers, leading to higher prices.
  2. Export Commitments. Since 1990 there have only been four times where export commitments have been stronger than they are right now. Over the past 5 years, China has been a large importer of US corn. Prior to 2008, China had been a net exporter of corn.
  3. U.S. Dollar. The dollar can have a significant effect on price, so it pays to watch it. Currently, the U.S. dollar is in a pennant formation. When a market breaks out of a pennant, a sharp move typically follows. A breakout higher could crush demand for exports, sending corn prices lower. If the U.S. economy begins to slow, the U.S. dollar could weaken and corn prices could rally further.
  4. U.S. Ethanol Production. Historically, there is a direct correlation between corn prices and ethanol production.  Ethanol prices and margins remain strong, which implies demand for corn should remain firm.

 

The biggest risk you face is complacency. In fact, the most risk can lie in doing nothing. If you need a boost to get started, there’s a special report we developed that can help. It’s called Be on Your Toes. You’ll find more detail around the four market indicators above. And, it offers suggestions for what you can be doing right now to take advantage of an increase in prices in the near term and be protected against the risk of a lower corn price this fall.

Download a free copy at www.cornpricemanagement.com.

 

Scott Stewart is CEO of Stewart-Peterson Inc., a commodity price management  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 2014 Stewart-Peterson Inc. All rights reserved.


 

 

Pace yourself with marketing

Nov 15, 2013

Here’s a simple idiom with potentially profound implications: Don’t bite off more than you can chew. Whether applied to eating steak, making personal commitments or managing commodity price risk, ignoring this advice can result in unwanted or even disastrous consequences.

I’m reminded of this phrase when I hear from farmers who’ve had bad experiences with marketing. Much of the time, those experiences can be traced back to doing too much at once. That’s a problem you can easily solve.


Let’s define "doing too much at once." In this context, it refers not to the amount of production committed or contracts purchased. Rather, it has to do with engaging in marketing without committing the time necessary to see things through.


It would be like rushing through training for a marathon. You’d be sore. You might feel like stopping or quitting altogether. It wouldn’t matter if you had run races before or were completely new to it. If you tried to do too much at once, you’d risk injury and pain.

 

For those of you who have been around the block with marketing as well as to those who haven’t yet started, what if you tried committing to consistent marketing? What if you took a percentage of your production – 10 percent or 100 percent, you decide – and treated it like a marathon?


Decisions would be made with the far-off finish line in mind: your weighted average price (WAP). WAP is the value of priced bushels, un-priced bushels assigned the current market value, and hedge positions. It is a means for you to measure the quality of your marketing decisions. Getting an accurate measurement requires a commitment to consistent marketing over time.


Short-term results would have less emotional impact. If you sold corn today at $5 and saw it rally to $5.25, you’d still be around to see it drop to $4.50. That’s a hypothetical scenario. The point is that the market is always going to move, and one decision – good or bad – doesn’t tell the whole story.


If you’ve had a bad experience with marketing or no experience at all, I encourage you to start slowly and work your way up. Pace yourself. Develop some simple strategies and maintain the discipline to execute them.


If you start small and stay consistent, you may not see big results. However, you will learn, and there’s great value in learning what marketing can do for you. Not to mention, you’ll learn more about yourself.


Are you the type of person with the stick-to-itiveness so necessary to becoming satisfied with your marketing? As we enter what could be a period of lower volatility, now could be a great time to get yourself to the starting line.


Scott Stewart is CEO of Stewart-Peterson Inc., 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 2013 Stewart-Peterson Inc. All rights reserved.

Timing & Emotion: Two marketing factors to heed

Sep 11, 2013

An article in Entrepreneur magazine this summer caught my eye with the headline "Timing is everything." I liked the secondary heading even better: "A record-high stock market exposes the suckers. Don’t be one of them."

 

By this time I was smiling, and of course, interested in reading on. The article was written by J.D. Roth, who founded a finance blog at getrichslowly.org and authored a personal finance book. I also find the website address worth noting. While marketing is not a means to get rich, the word "slowly" has merit. Great marketers focus on building a strong weighted average price for their production over time.

 

In this article Roth emphasizes the old mantra "buy low, sell high" – which is advice everyone has heard, though not necessarily followed. Case in point: Roth notes that with the stock market climbing, many who sat on the sidelines the last few years are getting back in and doing just the opposite – buying high. Roth minces no words in his article, saying: "Wall Street has a word for these people: suckers."

 

So why do people not follow the advice that’s been around forever? In a word, it’s emotion.

 

I have written often about the need to avoid emotion in your marketing. While it’s easier said than done, once you learn to be disciplined and not allow emotion to influence your decisions, your marketing can go to the next level.

 

Roth puts it this way: To make money in the market, remove the human element from the equation. He provides several examples in his article on ways to remove the "human element" that apply to marketing. Here are two that I particularly liked:

 

Don’t Follow. He says, "If you do what everyone else is doing, you’re likely to get burned." I encourage you to be the contrarian he’s talking about. When everyone is bullish, find a reason to be bearish – without going to extremes.

 

All the time we get asked what the consensus is among producers, are they selling or not? If we say that everyone wants to sell, they respond by saying they want to sell too. That’s the worst way to reach a decision. If you find everyone is selling corn, it’s probably time for you to buy.

 

In most years, corn producers are not as far sold as they hoped to be by summer. As prices continue to slide, they hope for a rebound and begin building a consensus as to why prices can bounce back. A contrarian might sell into that weakness – rather than sell later, after prices have gone down long and far.

 

Consider this additional potential: When prices are weakest, your neighbor is hesitant to upgrade equipment, and rents are attractive, those who did a great job of marketing can take advantage of lower rents and sales on equipment.

 

Stick With It. The market will go through dramatic swings; history has shown us that. Emotionally you must be prepared for those swings. Be ready by pre-planning your strategies and knowing well in advance what you’re going to do when the market does its thing. Then, when the storms hit, stick with your decisions. Don’t be swayed by the news of the moment.

 

I’ll end with a quote from Curtis Faith, a Chicago trader who turned a few thousand dollars into a fortune of over $200 million in the early 1980s: "Human emotion is both the source of opportunity in trading and the greatest challenge. Master it and you will succeed. Ignore it at your peril." This same thinking applies to your marketing.

 

Scott Stewart is CEO of Stewart-Peterson Inc., 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 2013 Stewart-Peterson Inc. All rights reserved.

 

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