Establish sales triggers and evaluate your plan often
Marketing is hard. It’s emotional, complex and can make you second-guess every decision. Take some stress off the table for 2016 by defining realistic objectives and creating a comprehensive strategy.
“A marketing plan is a proactive strategy to price your grain,” says Ed Usset, an agricultural economist at the University of Minnesota. “Fear and greed are powerful emotions. They affect your decisions. A solid plan is the only effective weapon against these emotions.”
You should spend as much time on your marketing plan as you do your cropping plans.
“It should be part of your overall business plan, which lets you identify how vulnerable your operation is to risk,” says Mark Stephenson, a dairy economist with the University of Wisconsin.
Your marketing plan, Usset says, should factor in:
- financial goals
- cash flow needs
- price objectives
- storage capacity
- crop insurance coverage
- anticipated production
- appetite for risk
Position sales to cover the cyclical nature of your major farm expenses, Stephenson advises.
Once you know your cost of production needs, you can identify the prices needed to lock in profits. “Think about at least three price goals,” Stephenson advises.
Sale Triggers. The first tier covers operating costs. The second covers personal goals and lets you set aside extra funds for family living. The last level is the “I’ve got it all” price (as in the record prices of recent years).
What Does It Mean To Me?
Time grain sales to cover cyclical costs and meet predetermined goals.
Chart the monthly average cash price to evaluate the success of your plan.
Know what it will take to lock in profits when they appear.
“These price goals aren’t just hope,” Stephenson points out. “When you hit them, they should trigger a set of actions to use marketing tools, such as futures, options or cash forward contracts.”
In addition to price goals, have a time component to your marketing, Usset says. Plan to sell a portion of grain at specific dates so you don’t end up with bins full of unpriced grain. “I’m cool with hanging on to grain for awhile, but don’t let it overstay its welcome,” he says.
Throughout the year, evaluate your or your marketing adviser’s marketing success. Usset suggests tracking the monthly average cash price for grain. Do this for 18 months, starting in January. Then you can compare your actual sales to the average prices to see how you are stacking up.
“You won’t always beat that market,” he says. “But it will let you see if you consistently miss pricing opportunities. It takes all of a minute every month and gives you an objective number to measure you and your adviser against and lets you know if you should change your strategy.”
Why You Should Start A Sales Journal
Document why you make sales when you do. Note the marketing strategy you use and file the information with your marketing plan.
“Undoubtedly, you will make some sales too soon or too late, but if you have a record of why you pulled the trigger on a sale, it can prevent you from kicking yourself later,” says Chip Flory, Pro Farmer editorial director and host of the radio program “Market Rally,” both part of the Farm Journal Media family.
This process will help you manage risk during the current marketing year and help you evaluate how you should modify your plan in the future.
For more tips and strategies on how to manage your risk and protect your profits, order Farm Journal’s Marketing Education Series, a step-by-step guidebook series and DVD. Learn more at shopfarmjournal.com.