As farmers, we need to know how much additional revenue can be gained by practising good marketing, and we need benchmarks to give us a much clearer understanding of how much time and money is required to market successfully.
Each of us should be able to answer these questions:
How much did it cost to market your grain last year?
How did that compare to what your neighbour spent on marketing?
Would spending more on marketing have increased your revenues?
Could you have made more money by hiring out the marketing of your crop and concentrating on production?
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Grain marketing is growing increasingly complex. In 1970, U. S. corn growers could lock in a futures position about one year in advance. By 2007 those same growers could forward price corn 38 months ahead.
As well, new marketing tools are constantly being developed. While many producers are still struggling with hedges and basis contracts, options have become the marketing strategy of choice for many top farm managers.
What are marketing costs?
Few producers are managing their cost of marketing as they do their cost of production. Part of the problem is many producers only look at the cash costs they incur in marketing activities. Costs such as DTN, information newsletters, and charges by marketing consultants are easy to allocate but these costs are often minor compared to the value of the time that farmers invest in digesting the information and choosing the proper marketing strategy.
Further, there are real costs to most marketing alternatives. There are premiums to be paid for hedges and options, for example. Margin calls can eat into cash flows if the market goes against your position.
While farmers tend to be quite vocal about the money they make on good trades, there is an opportunity cost when the market is misjudged and revenues received are actually less than what could have been made had the trade not been made. From a management standpoint, this loss of revenue should be deducted from market gains when assessing your cost of marketing.
Marketing costs must include other things than setting the price and reducing risk. Storage of grain has a cost and the length of time grain is stored is a marketing decision. Post-harvest cleaning and drying of grain to meet higher standards counts as a marketing cost.
Freight is likely one of the highest marketing costs for most farmers. Yet, there are transportation alternatives that influence freight costs. For example trucking longer distances to capture a higher price adds to the marketing cost. Trucking against rail freight rates will increase marketing costs if that grain is then railed. Marketing costs will differ if you truck your own grain off-farm, hire a commercial trucker, or have the grain picked up at the farm by the buyer.
The elevation and handling charges by line companies are significant costs of marketing. Because of these charges, some producers rely on producer cars to reduce their marketing costs.
Marketing costs can increase dramatically if farmers choose to bypass the few large buyers that dominate the grains industry and seek out niche markets. First they have the costs of finding the market, then of delivering the grain to the market, and maybe most importantly, the costs of follow-up after delivery is made to ensure the grain met the needs of the buyer.
Grain-marketing costs decrease if a farm diversifies and grain is processed on-farm through a livestock enterprise or some type of value-adding venture.
The message is, it’s just as important to monitor marketing costs and returns as it is to monitor production costs and the return for every dollar spent on crop inputs, fuel, and equipment expenses.
