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June 2011 Archive for Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Three farm marketing lessons from rain

Jun 27, 2011

There’s no question rainfall is necessary. How much will we get and when? Those are perennial questions. This year, the answer hasn’t been good in either case.

Much of the Midwest has experienced a wet year at the wrong time. Swollen rivers caused by heavy rains have flooded towns and farm fields. In Minot, North Dakota, snowmelt and unusually wet weather are wreaking havoc. Minnesota has seen considerable rainfall after record winter snowfall. The Minnesota Crop Report from May 2 showed 1% of corn planted versus 84% planted at the same time last year. Who would’ve thought?

 

Aside from unpredictability, what can rain teach about marketing? Here are three key lessons to keep in mind next time the sky pours forth and throws a wrench into your livelihood.

 

1. Situations can change quickly. A field that’s dry one day can be flooded the next, sometimes without clear warning. You may see rain in a forecast and still be overwhelmed by the volume and speed with which it hits.

 

Lessons for your marketing: Remember that market conditions change quickly, so prepare for the possibilities, capture opportunities, and minimize your risks. July corn futures peaked on June 10 at just over $7.99, and on June 23 we hit a low of $6.39, approximately a 20 percent swing. December corn contracts peaked on June 9 at about $7.22 and hit $6.20 on June 23, not quite as significant a difference as July, yet a dollar a bushel is nothing to sneeze at. Did you prepare for a possible drop and make some sales earlier this month?

 

2. Forecasts are only forecasts. It’s important to know what the weather might do but you can’t bank on what it actually will do.

 

Lessons for your marketing: Move away from a price outlook approach to marketing and take a strategic approach. Develop strategies for whatever the market may do. There are too many market factors over which there is no control. Using outlook as a filter can help you make strategic decisions. Just like with weather, it’s important to know what might occur with price. Yet, in marketing and meteorology, it’s impossible to predict what actually will happen. You’ve see rain fall when it wasn’t in the forecast, right?  Prices can fall when all fundamentals point to higher prices.

 

3. Rain doesn’t discriminate. Many parts of the Midwest are drenched, yet drought is taking hold around us. Areas of Kansas and upper Michigan have been abnormally dry. Rivers in Iowa were running low last month.  Droughty conditions in Oklahoma and farther south have been moving northward. Rainfall amounts leave some people dancing in the rain and compel others to do a rain dance.

 

Lessons for your marketing: All other factors among neighbors being equal, the markets can hurt one person’s profitability much more than the next guy’s. Put a hedge line of credit into place so that your marketing decisions aren’t being influenced by cash flow or availability of funds. Learn to use options. Market your entire production. And, become a marketing expert or hire one. In broader terms, protect what you work so hard to earn from markets that know neither mercy nor boundaries.

 

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.

 

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 2011 Stewart-Peterson Inc. All rights reserved.

Farming when acres are cost-prohibitive.

Jun 07, 2011

As farmland values continue to rise, are you prepared for the implications? Obviously, land will cost more to buy or rent. What about factors that could push prices even higher and change farming as we know it?

Outside investors are one variable to keep an eye on. Rising farmland prices will draw their attention. Just this spring, Warren Buffett said, ”If you gave me the choice between all the farmland in the country, stocks like Exxon Mobil, or gold, I’d choose the stocks and the farmland.” It’s no wonder he likes farmland. Corn Belt farmland increased 16 percent in the first quarter of this year, the biggest jump in 32 years, according to a report from the Chicago Federal Reserve Bank.
 
While the report also states that famers—not outside investors—have been the biggest buyers thus far, investors go where the money is. If they play a role in bidding up land even further, you will need to earn ever more money to remain viable. In short, those in positions of financial strength will grow stronger, pushing out those who aren’t as financially fit.
 
Farmers are able to purchase higher-priced land right now because commodity prices are trading at or near all-time highs, and the present-day profit picture looks extremely good, according to the Fed. In the debt department, loan repayment increased and loan extensions decreased in the first quarter.
 
If higher commodity prices are the norm, as some market observers believe, the near future for farm profitability could continue to look good. Yes, input costs are up but not dramatically. The cost of producing a bushel of corn has risen approximately 17 percent over the past year while the current price offered for new crop corn has risen approximately 70 percent.
 
Allow me to pause and repeat something I’ve said before in one form or another: Continued market volatility will create opportunities and risks. Unfortunately, many producers will miss attractive pricing opportunities due to complacency with their marketing. That’s what high commodity prices can do . . . lull you into believing and hoping they will remain high. That’s why it’s so important to be well-positioned with your marketing.
 
With land prices already at all-time highs, there’s talk of a bubble and of prices being near a top. I can absolutely say that talk is wrong. I can see Corn Belt farmland values doubling or tripling before coming down significantly. If this were to happen, it could fuel a tipping point toward foreign or institutional ownership of farms. That’s because farmers aren’t getting younger. According to the USDA 2007 census, most farmers fall into the age range of 45 to 64. Farmers 65 and older are the fastest-growing group.
 
The kids of American farmers aren’t following in their parents’ footsteps. They’re gravitating toward other careers. Many will work in agriculture; just not on a farm.
 
When today’s generation of farmers passes away, I expect many of their children will sell the land. Who will have the means to purchase it at $10,000 or even $30,000 per acre? The wealthy and powerful.
 
Foreign- or investor-owned farms, and the very largest of independent farms, will have cost structures and economies of scale that will eventually force smaller, unprepared producers out of business.
 
This is the reason I encourage you not to get complacent. Enjoy high profits, yet know that prices will remain volatile. Markets go up and down. Great profits are followed by losses.
 
Embrace market volatility and the profits that are offered. View it as opportunity. Build yourself a financial cushion so you can afford land and land rents, and hold on to all that you have worked so hard to build up!
 
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.
 
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 2011 Stewart-Peterson Inc. All rights reserved.
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