Recent market volatility has provided great wealth for a few and frustration for many. Tried-and-true marketing rules like advance sales or use of hedged-to-arrive contracts became obsolete overnight. Never has the gap between farmer expectations and advisory service goals been greater: Farmers feel advisers missed the market; advisers feel farmers are being unreasonable. One key to success on both sides is agreeing upon realistic objectives and clear communication about those goals.
Nearly half the readers answering a September Top Producer survey said they expect marketing advisers to deliver prices in the top one-third of the price range.
New Measures. But perhaps producers should measure success in other ways in addition to prices received. "Producers need to shift their focus somewhat from attempting to secure a certain price to one of making sales when the market offers a profit opportunity," says Dale Durchholz of AgriVisor, noting that extreme volatility makes it hard even to identify what the upside potential might be.
Scott Harms of Archer Financial Services believes producers should expect two attributes from a marketing service: time savings and clarity. "Time management is a challenge in most farming operations," he says. "One way to save time is to automate sales. But such a service must be performed efficiently and affordably.
"Likewise, farmers subscribing to a service should not need a Ph.D. to decipher the advice or the adviser's position," he says. "If they can't quickly determine any recommendations for that day or quickly view open positions, it likely will lead to frustration."
Regarding price outcomes, Harms says, "When farmers turn to a service for assistance, they should expect a price in the upper one-third of the weighted average price range for that marketing year." He acknowledges, however, that "this objective will not always be obtained."
A few services, including AgriVisor, the Brock Report and Doane Outlook Hedger, identify the same goal.
However, Richard Brock notes: "Ironically, what we see as a good and successful year is not always what a farmer considers a successful year. For example, if we have a poor year in marketing cash grain but make money in the futures/options account, a large share of our clients are happy. On the other hand, if we do an incredibly good job in cash marketing but have even a small loss in futures/options, the majority are not happy. One of our biggest challenges is getting producers to focus on the net result of both cash and futures/options."
Stated Goals. Top-ranked Randy Martinson of Progressive Ag Marketing says he has a different goal: "We don't make promises about performance. But we do have a goal of improving clients' marketing results by 10¢ to 20¢/bu."
Most of the advisers state their goals in more general terms. "Top Farmer subscribers can expect a well-balanced, strategic approach to marketing," Bryan Doherty says. "Customers will see recurring themes in our recommendations: sell early, sell often; shift risk and manage opportunities."
Likewise, Scott Stewart of Stewart-Peterson says: "Our customers can expect to be prepared with strategies for whatever the market does. In these volatile times, no one can predict the market all the time. Our goal is to have customers ready so they are mentally prepared to pull the trigger and have the discipline to act when needed."
"We think an advisor's main duty is to fully understand the goals and needs of each customer so they can provide the appropriate information and strategies throughout the marketing year," says Gavin McGuire of eHedger. "An adviser can then keep producers focused on their ‘bigger picture' targets even when they are preoccupied with production considerations.
"Producers, meanwhile, should be able to rely on their adviser to provide them with methods to advance their marketings in a consistent way designed to capture profits and boost farm income," he says.
"Both sides need to recognize that no one is ever 100% correct 100% of the time, but that a disciplined and organized approach to marketing and hedging is always the most effective way to boost business profitability over the long term," McGuire says.
Advice Farmers Follow. The advisers say they try to keep their advice within the bounds of what producers are willing to do. "This is very significant," Brock says. "The 2008 crop is the best example. When corn prices were $7 or higher, we felt we were handcuffed because the majority of grain elevators were only buying short-term and not offering harvest bids. On the other hand, volatility in futures was excessively high and so were margin requirements, so few farmers were willing to use futures and options. We felt that fewer than 10% of our subscribers would do whatever we recommended during that time frame.
"We are always torn between giving recommendations based on what makes our track record look good versus what we believe a farmer will actually do. Last year was an excellent example of how the two conflicted," he says.
"We break sales into small enough increments so a farmer is willing to make the sale," Progressive's Martinson says. "If we tell them to sell 100% or even 50%, they are not likely to act." (For more on Progressive's approach, see Market Outlook)
Dan Manternach of Doane adds other benchmarks: "We know very few subscribers will sell more than 50% of the crop before it's planted; most won't sell more than 65% before it is pretty well ‘made' or more than 80% before harvest. We never advise carrying over one crop into the next crop year, and we never advise being more than 100% short or 100% long on combined cash and futures positions."
AgriVisor's Durchholz says: "Our normal goal is to be about 50% priced by harvest. We were hesitant to push the window that far in early summer given the late planting and markets only offered one opportunity in the summer, and for corn it wasn't that attractive."
Stewart has a different view: "Our new, revised Report focuses on providing the best possible advice and strategies, regardless of complexity or the comfort level of the user. We view the strategy for the crop year as a living, breathing item that must be attended to, as a farmer tends to a crop or a herd.
"If marketing was easy, producers wouldn't need advisers," he says. "We believe it is our job to push them beyond their comfort level, but support them with a rationale, education and access to an adviser by phone if needed."
For the latest track records, click here.
Top Producer, November 2009