Cash In With A Well-Written Commodity Marketing Plan

November 30, 2016 08:52 AM
 
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Markets change fast. A 10¢ swing in corn prices can be the difference between a profit and a loss with today’s tight margins. Have you dedicated the time to develop a proactive and flexible marketing plan for the new year? If not, put it on your to-do list now. 

“Marketing takes time, discipline and relationships,” says Mark Welch, Texas A&M Extension economist. “The best marketing opportunity may be when you are the absolute busiest. Who in the operation is dedicating the time it takes to monitor marketing opportunities? Are you going to do what you said you were going to do in your marketing plan? Is there open communication among all the partners in the operation (including lenders and merchants) about what we are doing, when and why?” 

A marketing plan serves as a road map to make sales based on time and price goals, letting you have peace of mind you’re making profitable and opportune decisions. In 2017, your lender might also require a marketing plan. 

“Anyone who is leveraged at all will have to have a marketing plan when they ask for an operating note,” says Matt Bennett, president of Bennett Consulting and an Illinois farmer. “Bankers are in this with the farmer and want to see farmers work their way out of this.” 

When you share a written plan with your lender and other business partners, it increases their confidence in your operation. Follow these tips to craft your marketing plan. 

1. Use your plan to reduce emotions. 
“The primary advantage of a marketing plan is helping you get emotions in check,” says Mark Welch, Texas A&M Extension economist. “It establishes objective criteria by which you make a marketing decision.” 

Although it’s unrealistic to remove all marketing emotions, Bennett adds, you curb them by doing breakeven and profitably analysis. “Look at it in black and white,” he says. “If a sale is profitable, be happy.”

2. Know when the market is offering you a profit. 
When Matt Bennett, president of Bennett Consulting, works with farmers, he helps build marketing plans around breakeven. “The main thing when it comes to marketing is being in tune with your farm’s expense structure,” he says. Tabulate all of your fertilizer, seed, fuel and other cost-of-production expenses, along with actual or expected yields.

3. Break up the marketing year into quadrants. 
With the constant stream of market news and noise, it’s easy to hit information overload. Welch suggests looking at the marketing year in segments and being diligent about pricing a predetermined amount during each time frame. “For a person whose time is limited, having a breakup like that is helpful,” he says. “Just recognize somebody needs to have the eye on the ball every day.”

4. Update your plan throughout the season. 
Most farmers start their marketing plans when they apply for their loan packages, Welch says. Revisit the plan as you commit to major inputs, such as seed and fertilizer. “Then at regular points during the growing season, when the yield aspect is more known, update your projections on how that will affect your breakeven,” he says. 

For producers working with a broker or marketing advisor, Bennett suggests setting a regular check-in point. “I encourage farmers to call me once a week,” he says. “I want them to spend 10 or 15 minutes thinking about marketing and know the questions they want to ask.”

5. Have trusted partners gut check your plan. 
“I tell producers when you are doing your marketing plan, or if you have a hedge account, you have to have at least one person other than your broker that you talk to,” says Bennett, a former grain-elevator owner. This could be your banker, spouse or a farming peer. Because producers can become emotionally involved in their day-to-day operations, an outside perspective brings objectivity and fresh eyes, he says. 

6. Analyze your decisions at the end of the year. 
As you execute your plan, write down why and when you made sales. “Include what you knew and what you didn’t know,” Welch says. “Then at the end of the season, you can see how it worked. You’ll know if you should build more flexibility or make adjustments into next year.”

 

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