Write Your Own Financial Reform

Published on: 11:40AM Jul 19, 2010
It was a lengthy battle. In the end, the Senate passed the 2,300-plus-page financial reform bill, which means very little to you as a producer marketing a crop. Here’s what all the fuss does say: Arguing and scheming and passing bills changes nothing about the complexity of markets and the way you sell your production. There are several forces at work moving the markets. You can’t control them, but you can take control of your marketing.
This bill isn’t going to change farm marketing, despite last week’s implications in the Wall Street Journal article “Finance Overhaul Casts Long Shadow on the Plains.” You’ve still got to prepare for the countless variables that can move the price you receive for your production. Among them: currency fluctuations, growing conditions, drought, USDA reports, speculation, decisions made by the Chinese government and rogue traders. The list goes on from there.
Yet, despite what is an unpredictable and uncontrollable market, marketing can be done well. Through marketing, you can position yourself to take advantage of opportunities and minimize risks. In reality, you have to.
I don’t say this because I work in farm marketing. I say it because I work for independent farmers.
Prices offered by the market over the years tend to average near the average producer’s breakeven. That’s just the way it is. That’s why it’s so important to consistently take out of the market as much return as you possibly can within a reasonable risk parameter.
Write your own financial reform. That is, learn the tools that will help you position yourself to succeed.
Some will say that marketing tools are too complicated. As an example, when we talk to producers about hedging and strategies that employ futures and options, one of the more common responses we hear is: “Why sell a cash crop and spend money on calls? It doesn’t make any sense.” The answer is that doing so replaces the direct risk of ownership with a more conservative re-ownership approach.
There’s a bigger-picture answer as well. It has to do with the concept of understanding tools and using them appropriately. Whether you sell a cash crop and buy calls depends on your personal strategy. The strategies you employ should be tailored to your operation, your risk tolerance and the hopes you have for your operation. Today, I really just want to stress that marketing tools are used to position you to capture opportunities and minimize risks. They should be embraced when appropriate.
Chances are you were frustrated with marketing before this billed passed the Senate. We’ve read the frustration in a Top Producer poll suggesting that a significant number of producers market by gut instinct. If you find yourself getting irrationally exuberant during a rally, stubbornly adamant during a decline, or second-guessing your moves, that’s your gut guiding you. And, if that’s the case, you’ll be frustrated well after the bill’s provisions take effect.
Save your gut for Vegas and join the minority of producers who take control of their marketing by learning marketing tools. Develop sound strategies and follow them, and you can dramatically decrease your frustration as you increase your comfort level. You can replace fear and anger with confidence. In the end, you’ll make your marketing boring, cold and calculating. Not frustrating.
Try not to get emotionally caught up in the editorializing that comes from both sides of argument over reform. For producers, the bill passed by the Senate last week is just a lot of noise that leads to misplaced energy. The price you receive or don’t receive for your hard work will be determined far more by your actions than by those of the Senate.
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 [email protected].
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