Playing For Field Positions

12:00AM Nov 07, 2008
( )

Compare Greg Wade's marketing strategy to that of a head football coach: He'd have an aggressive, but not overly aggressive defense and a very balanced offense. He'd listen to his coordinators but he'd call the plays, always keeping field position in mind. He wouldn't worry about a quick score or the highlight reels. Too often those highlights are short-lived. The key is to be ahead at the end of the game—not to win only the first quarter.

Wade, the 53-year-old patriarch of Wade Farms in Stewartsville, Mo., uses Stewart-Peterson Group as his coordinators. In the past seven years, he has implemented a regimented marketing program that is part of his annually updated five-year business plan. His goal: to sell in the top third of the price range each year. In other words, at year's end, he wants to be ahead of the game.

Building the team. His philosophy has led the way for Wade and his wife, Vickie, to expand their business and bring their sons, Nick (27) and Bryce (24), onto their farming field.

Greg, Nick and Bryce each have their own business, but they share equipment, labor and major decisions. Greg handles most of the marketing chores, in consultation with Mike Hogan at Stewart-Peterson. Wade has worked with the consulting group since 2001, and over time they have learned to trust each other. Hogan has become an important part of the family's business.

About nine years ago, Wade decided a change in advisers was necessary, but he didn't rush into finding a new one. "When I knew I was unhappy with A.G. Edwards, I went to the Top Producer Track Records. I read about each one, and I followed them. I watched that [chart] for a year and a half. I sure didn't want the guy who performed the worst for two years in a row, but I probably wasn't interested in the high-risk one, either. I wanted somebody who understood what I was thinking.”

After narrowing down his choices, Wade interviewed three advisers over the telephone. He then met with an adviser from Stewart-Peterson at a one-on-one. They compared marketing philosophies in detail.

Play calling. Hogan says the relationship between his company and Wade's is consultative in nature. Wade pays Stewart-Peterson a flat fee, which is based on the fact that cash sales are the key component of his marketing program. Hogan offers suggestions for cash sales and hedge positions. Their goals have not changed since their first meeting.

"I said I felt they should make us another 20¢ to 40¢/bu., because the consulting fee was a lot of money,” Wade says. "I said, ‘I'm going to tell you when I'm selling it, when I'm storing it, and you tell me what you can do for me to add money to it.' They follow more trends than I do. They'll have every trend and resistance point for 100 years. I may want to sell when I have a lot of land payments or I want to buy another piece of machinery. They may say, ‘No, there's another upswing in the market.' But in the end, it's my call.”

Game plans. Hogan says, "We try to come up with a strategy that can ebb and flow to the most benefit for Greg. Every day is a new day, and as markets move, his cash position is either stronger or weaker and his hedge position is either stronger or weaker, and we may need to adjust that.”

Wade maintains a coach's mentality and uses Stewart-Peterson as coordinators. Some farmers only want advice, while others want advisers to handle the entire game plan. Which role your adviser plays will affect how much money you spend.

"You have to decide exactly what you want from your adviser,” says Farm Journal Economist Bob Utterback, of Utterback Marketing. "The more you want, the more it's going to cost. There's a point where clients want a lot from their adviser, but they don't want to pay for what they think they want.”

Utterback sees two extremes emerging: on one end, farmers who only want advice, and on the other, farmers who will pay for a full-service, more turnkey approach. Anything falling into the middle can lead to misunderstandings and lost opportunity. That potential for lost opportunity was highlighted in early 2008 when forward contracting options were limited. Keeping those options open requires investment, Utterback says (see sidebar below).

A sound game plan doesn't mean you'll score a touchdown on every position. Rather, it means you may pay money for something you never use. Options, Wade says, are only insurance and that's how he uses them.

Even a true believer in risk management like Wade catches himself saying he "loses that money.” After all, he says, there isn't a loss, and that's the biggest misunderstanding when people pass on marketing programs.

Forget the bad play. Wade believes too many farmers get caught up in hindsight marketing, and that can interfere with proper execution of your game plan. "You need to learn that if it worked into your cash flow and you made money, you should be happy. If you sold at $3.50 or $4 and made money, you need to live with it. Sometimes you just have to go on.

"Nobody wants to lose, and I don't either,” Wade explains. "I'd like to hit the rebound and win both ways, and that doesn't happen very often. But that's just common greed, and anytime you write a check for $20,000 or $30,000 and then it's just gone, you have to realize that's just part of your expense of risk management. That was the hardest part for me to grasp. I still say ‘lose it,' but it's not losing. Sometimes it's the best thing that can happen to you.”

The Biggest Fumbles

Advisers like Top Third Marketing's Mark Gold are clear about the biggest marketing mistakes clients make. "They try to outguess the market,” he says. "First, they think they know where it is going. Second, they trade futures and get into marginable positions with futures and options. Third, they get emotional. Fourth, and maybe the most important, they are under the misconception that if 85% of options expire worthless, they should never buy options because the odds are too stacked against you. That's absolutely wrong.”

Gold uses $7.50/bu. wheat, which was historically high, as an example. He bought puts at $6/bu. "Wheat went to $10/bu. and we lost the 20¢, but we still have wheat that's worth $10. The net gain isn't how much you make or lose on options, the net gain is about how much you make on the total crop.”

Stewart-Peterson Group's Mike Hogan says defining your goals and knowing how they fit with marketing philosophy is essential. "We do personality assessment to make sure a client will take the consultation. If somebody is really good at marketing or has control concerns, they may be better off using a broker. ”

Farm Journal Economist Bob Utterback says defining goals and expectations will influence your bill. Knowing this can help you avoid headaches and stay away from needless disagreements with your adviser. "I probably haven't done as good a job as I could have for the guys who want me to look at cash and futures, because they didn't have cash flow to hedge positions. The banker wasn't involved; they didn't want to take the risk. The elevator didn't let you forward sell, so what are you supposed to do? You're supposed to sell, but you can't because the elevator won't do it and the banker won't do it.

"So, what the farmer wants and what he gets needs to be defined. If he wants somebody to manage speculatively, he should formalize that with the adviser. If he wants a cash adviser, he needs to realize that $20,000 to $25,000 isn't enough—you won't get quality service at that fee,” Utterback says.

To contact Greg Vincent, e-mail [email protected].

Top Producer, November 2008