Farmers face different risks every year, whether it’s adverse weather affecting crops or global events limiting market access. More recently, it’s been supply-chain delays and rising input costs. We don’t yet know what will drive the next market move.
These risks impact commodity prices, of course, and can mean boom or bust for U.S. farmers. Yet every year, many producers fail to plan for their risk potential, choosing instead to adopt a wait-and-see approach in their marketing decisions.
That’s risky behavior, says my colleague Darin VanVactor, who believes a marketing plan is key to profitability.
“There’s so much emotion among producers in selling their crops and livestock,” says VanVactor, a manager with Pinion risk management. “Marketing decisions are reactionary — emotions outweigh data — and rarely accomplish goals. That’s why following a risk-management plan is so important.”
THE STEPS TO TAKE
Market volatility has been part of agriculture for decades. But today, commodity prices react even more quickly to the influences of a world market. Moreover, farming is more complex, leaving producers less time to manage commodity marketing.
All that underscores the need for a marketing plan tailored to your own farm needs. It’s critical to pursuing opportunities and achieving success. Here are steps VanVactor recommends for building that plan:
Know your cost of production. This is essential. Determine both direct and indirect costs. Direct costs include seed, chemical, fertilizer and land rent. Indirect costs include depreciation, interest, repairs, taxes and insurance.
Identify market risks. Trade wars, the lingering effects of the pandemic, extreme weather and labor shortages point to increased volatility ahead. Know how they can affect your operation.
Put a plan into place. Work with a marketing professional to help you establish profitability goals and hedging strategies. Know your risk comfort level. Understand your local market’s history and basis trends, which are different for every area.
Plan for cash-flow needs. Invest in ways to control inventory, such as on-farm storage. Once you make your plan, don’t forget about it. Review strategies periodically and refine if needed.
Include multiple risk-management tools in your plan. Smart marketing extends way beyond a cash sale. Under-standing how to offset risk is just as important as knowing when to offset risk. Marketing opportunities often occur at the most inconvenient or unexpected times.
A proactive plan allows you to be ready to sell when opportunities arise as well as leave the upside open for greater profitability. Awareness of seasonal basis trends and using the right marketing tool for your situation is key to your success.
Kala’s insights have helped position agribusinesses for both survival and success, from agricultural lending, cash flow strategies and debt optimization to grain marketing, risk management and legacy building. As a Pinion manager, she is a proactive catalyst
for agribusiness success, enabling their growth, optimization and expansion.
