In many conversations I have with producers, they often tell me how much they enjoy farming and what goes with it. They enjoy planting the seed and raising the crop. Also enjoying the thrill of harvest, and the logistics that come with it. However, it seems many producers see marketing as their least favorite, or even most challenging part of running their operation. Understandably so, there are a lot of blood sweat and tears in that bin, and marketing can become somewhat emotional.
A key to marketing is checking the emotions at the door and developing a marketing plan you can stick to, focusing on making profitable sales, not necessarily hitting the high! To build this marketing plan it’s going to be very important to determine your production costs or breakeven, and then to utilize this information on a per bushel basis to market against. If your breakeven is at $4.00, it’s ideal also to set profit goals, for example, $4.50. You can then use this range to market your grain during potential market upturns. The next difficult questions is … am I willing to sell below that number?
Marketing plans can become difficult to write, especially when the market remains below production costs. The single most important objective is to determine your minimum price objective. It is possible to set your minimum price objective below your production costs/breakeven. It may prove difficult, but it is important to be realistic and set targets the market can provide. Unfortunately, the markets can be tough and come with no profit guarantees. That said, no one wants to sell below cost. There are a couple of things you can do to get the upper hand. Rule to remember here is that time is your friend! There is no reason to be fearful of making a conservative sale 18 months ahead, at profitable levels. There is nothing risky about guaranteeing yourself a profit. Could it go higher? I hope so, could it go lower…. It sure can. But one thing is for sure, that profitable sale is guaranteed money. Profit taking is not a dirty word.
A good marketing plan will spread out your risk, by making incremental sales with different types of contracts. I would like to share with you an example of a sample marketing plan, but first some key fundamentals of marketing. A. It is going to be important to sell in percentages; it doesn’t matter what your acres look like from one year to the next, percentages remain the same. B. Use seasonal targets, these are much less emotional. C. Be consistent and stick to your marketing plan from one year to the next.
Sample Marketing Plan
The above sample plan is a simple starting point, setting goals, and deadlines. It’s important to know, the market may never reach your goals. The market can also leave them behind. A marketing plan creates deadlines. Deadlines are dated when grain is priced, regardless of whether or not your price objective was met. While I am willing to take action below costs, note the limits, I have placed in blue. I don’t want to be overly aggressive in a down market. Determining that number is an important part of your overall plan.
Pricing tools are strategic at the time of sale. There are considerations such as your storage capacity, the opinion of basis, and risk tolerance.
I will add there are some additional strategies that can be used during tight years to increase the value of a lower cost sale. A simple roll to the next futures month to capture carry in the market, or a Bonus Premium offer for the following year. These are all ways to add .10-.30 cents to an existing sale.
For producers looking to find additional assistance developing a marketing plan, or for those producers looking for overall marketing guidance, please call your CVA location and ask to speak with a ProEdge Risk Management Consultant.