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January 2010 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Weekends Are a Lot Like Marketing

Jan 22, 2010
If you’ve been watching NFL playoff games these past weekends, you’ve no doubt heard references to the best teams having a “balanced attack.” You’ve also got to attack marketing with balance if you hope to take control of the game.
 
I will go a step further and say that without balance in marketing, you won’t be in the game. So here’s how you get it.
 
Look at the balance between the opportunities you can potentially receive and the risks you’re taking. Also, consider the need to balance the amount of crop you have priced against the amount of crop that's un-priced. While there’s much more to cover in a discussion of balance, these are good starting points.
 
If you spend a fortune, you can manage every risk and every opportunity. But then you've spent so much money, you've eliminated all opportunity to ever make any money. At the same time, if you don't invest in marketing to manage some of the risks, you’ll have unlimited risk.
 
So you have to have balance, sort of a sweet spot, where you're investing enough money to cover your risks while still being in position to manage and take advantage of opportunities. Don’t invest too little or too much, or you might get blindsided.
 
Another principle to think about when looking at balance is the amount of crop that you have priced. For example, it's critical that, in a bull market, you have a substantial amount of your crop un-priced or re-owned so you can take advantage of the trend.
 
We've found through experience that if you have about 70% of your crop un-priced in a bull market, you’ll have opportunity to take advantage of the majority of the move. The roughly 30% of your crop that you might have priced at lower levels won't substantially hurt you relative to the approximately 70% of your crop that you own and have available to sell at higher prices. 
 
At the same time, if you have somewhere around 70% of your crop priced in a downward moving market, the percentage of the crop un-priced, about 30%, won't substantially hurt you when compared to the amount that you do have priced. 
 
Okay, so picture this. If you’re about 70% un-priced when the market is rallying, and roughly 70% priced if the market is declining, what you've got left is about 30% of the crop on either side—30% either priced or un-priced—that you're not as concerned about. That's 60% total on the two ends of the spectrum.
 
What you should really be concerned about is that 40% in the middle. A big part of having balance in marketing is knowing what you want to do with that 40%. 
 
Obviously, you need to think about your entire crop. But a big, big part of having a balanced strategy and adapting to market moves is managing that middle part of the crop. You’re shifting it from being either aggressively priced or being un-priced as the market changes trend and direction. 
 
The concept of balance extends to a much higher level when you consider the key aspect of leverage. And, for another day, there are multiple forms of leverage to think about. In this blog—and in the spirit football, balanced attacks, and helping you take your marketing to the next level—I simply want to provide a couple of examples to emphasize the importance of balance in marketing.
 
I should add that while I do believe in focusing on the 40% of crop in the middle mentioned earlier, you can be 100% priced and still be balanced—as long as you have thought through how you’ll counter that 100% priced position if the market trend changes. 
 
You always—always—have to pre-plan your moves. Know what you're going to do, how you're going to do it, and why you're doing it. That's just smart, strategic, disciplined marketing.

Sell and Defend When Markets Offer Value

Jan 11, 2010
In one of my recent blogs I talked about the current corn price being a Christmas gift. That remains true. A recent analysis by ADM Investor Services shows that the current markets have corn priced about $1.00 over what supply and demand fundamentals say it should be. Likewise, soybeans are about $3.00 over what a typical fundamental analysis shows.
 
In the old days, we used to be able to look at supply and demand and carryover stocks to come up with a basic fundamental analysis and a reasonable price for commodities. What is “reasonable” anymore? Investment fund buyers, wacky weather and an explosion of information out there about what markets might do makes fundamental analysis only one part of a constantly shifting situation.
 
What’s a marketer to do?
 
  1. Recognize value. Corn is at a good value right now. Sure, input costs have gone up, but current prices are still a good value when you plot them on a historical chart.
  2. Weigh probabilities. When prices are sitting at a level that is higher than what the fundamentals say they should be, there is a far greater risk of prices going down from those levels than going up. You need to determine how much risk there is that prices will go down, and how much they might go down if they do. Then you engage in scenario planning (as I’ve described in previous blog posts). Know what you will do in each possible price scenario, and what triggers you will use to enact your strategies.  
  3. Sell and defend. When you look at historical prices and see good value in today’s prices, you generally want to sell. Sure, we can have a run-up in prices due to a weather event next year, so defend yourself against this probability with reownership strategies.
The psychology of it all
There’s a reason for my recommending sell and defend in this situation, and it has to do with human nature.
 
I’ll tell you what I see all the time: Farmers tend to be slower to react in a bear market than they are in a bull market. If the price climbs up a dollar and you are slow to react, you may miss a high, but you can still sell at levels that offer some value. But if the price starts dropping and you are slow to react, you can take a killer loss. We see this all the time when prices start dropping—the farmer tends to think it won’t continue to drop, or they want to wait for the price to go back up a little before they act. For these reasons, based on hope and emotion, they are slower to sell in the bear market.
 
This tendency—being slower to react to a bear market--is why I usually recommend sell and defend when the markets are offering value. This strategy guards against the killer loss, yet leaves you open to opportunity.
 
It’s worth saying again: You can shorten your reaction time for making these decisions by thinking about your strategies in advance, something I’ve described in earlier posts as “market scenario planning.” If you envision all the possible price scenarios, know what you’ll do in each scenario, and know what trigger points you’ll use, you can avoid second-guessing, avoid reacting too slowly, and make decisions with more confidence. 
 
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.
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