As if marketing isn’t complex enough already, Ryan and Lauren Maurer have injected two extra complications. Their farm is above average in size, with 11,000 acres based at Grenfell, an hour and a half east of Regina. Plus, they grow and have to market a wide variety of commodities, including grains, pulses, oilseeds and niche spice crops.
“You might find we do things a little different from other producers,” Ryan says right off the top.
Some might say that’s an understatement. “Diverse inventory gives us the flexibility to sell at opportune times,” Lauren says, using the example of the caraway they held for 10 years waiting for the price to improve. The crop was put into the farm rotation with the understanding it might not move quickly. “It’s a niche market,” she says. “It comes in four-or five-year cycles so you have to know you can sit on it a long time.”
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That may be an extreme, but it points to the couple’s commitment to their production and marketing plan. In fact, they believe the success of their farm, Land and Sky Grains Inc., can be attributed in part to having a diversity of crops.
Their success is also due to the fact that they integrate their marketing with their business objectives. “We do some marketing for tax reasons,” Ryan explains, “some according to what we can blend on farm, and we sit on some inventory to wait for pricing.”
Ryan and Lauren were recently named Saskatchewan’s Outstanding Young Farmers for 2010. It’s clear that, while the couple may be relatively young with four children aged six to 13, they are not new to farming. They’ve farmed together for 17 years and Ryan with his parents for some years prior to that.
While not all producers have the ability to blend their own products or wait out niche market pricing, the Maurers believe that recent years of good production and strong prices have given all farmers greater opportunities and a little more flexibility in the market.
The Maurers also use four basic rules in developing a marketing plan.
1. Know each field’s cost of production.
The couple uses AgMpower, a software program that calculates breakeven levels on a field-by-field basis. Most producers will do their COP crop-by-crop but “doing each field allows for more specific management of both crop and field needs,” says Lauren. In fact, COP is so important to management and marketing on their farm, the couple is part of a producer group based around the software. They share information and ideas, and each has access to the others’ programs online, instantly providing a live peer and support group.
The Maurer’s use call and put options to price themselves or protect themselves. They also use forward selling, but not so much on new crop. “Why take an unnecessary risk with a large inventory on hand?” Lauren asks. That inventory is a huge marketing advantage, allowing a great deal of flexibility. So is the fact they own 75 per cent of their land, she says. “If 70 per cent of our land was rented, I would want to market significantly differently.”
3. Evaluate the upside and downside of each commodity.
“You have to look at the risk of each specific commodity,” Ryan says. “And you have to look at the upside potential on crops.” For example, if canola appears to be weakening, the Maurer’s will probably sell it and hold on to something that shows upward trends.
And how do you know what’s trending? To assess current marketing potential, the Maurer’s subscribe to four or five daily and weekly newsletters on marketing and use these to check for an overview of the current world supply and demand in various commodities. They also check projection sheets to see future trends, giving them something on which to base rotation changes.
4. Good marketing starts with good agronomy
Good crop rotations ensure productive land, but they also allow the Maurers to find niche commodities that work. You can only afford to dedicate a specific number of acres to certain specialty crops if you want to wait for the price, Ryan says. But they can pay off big. That caraway the couple hung onto tripled in price over the 10 years it sat in inventory. You simply don’t see that kind of volatility with other crops.
The big picture
“You have to have a big-picture view, not just day-to-day or month-to-month. That larger view irons out the wrinkles along the way,” Lauren says. “Sure there is volatility in commodity prices, but keeping that big picture and a level head helps.”
“There is risk but there is also opportunity,” she adds. “You need to be careful to cover the basics. We tend to play it safe and sell before the markets peak.”
The Maurers are proponents of incremental selling. For example they might sell 20 per cent off the combine, another 20 per cent in January and so on. “It is probably a more consistent and more beneficial way to do it,” Ryan says. “And you have to accept sometimes that’s how it’s going to be. I’ve seeen people beat themselves up because they are continually changing their marketing plan and can’t get anywhere.”
And while Ryan thinks there’s some merit to the criticism that it has led to a generation of farmers that are good producers, but weak marketers, he says “The good old Canadian Wheat Board takes some of the guesswork out of it (marketing).” Initial prices help cover some cash costs up front and “wheat board grains have opportunity in marketing with premiums available on the identity preserved side of things.”
The Maurers have taken advantage of wheat board premiums, with a sale to Warburton of 49 cars of wheat headed to a bakery in the U. K. They’ve also sold barley to Canada Malt and Sapporo Brewery in Japan. “There’s not a huge premium,” Ryan says. “But you get the base through the CWB and can still extract premiums out of it. The premiums add up over time and bushels.”
“More than anything,” he laughs, “it can be done legally.”
The couple believes strongly that producers should look to the identity-preserved market and consumer trends for clues as to what to grow because those trends usually equate back to a premium. “It’s something a lot of producers miss,” Ryan says. “We don’t do due diligence in growing what people are looking for.”
Bill Brown agrees with the Maurers’ focus on integrating production and marketing. “The role of agronomy can’t be overemphasized,” says Brown, an economist in the College of Agriculture at University of Saskatchewan.
While the Maurer’s are planning 18 months in advance (there’s that big-picture thinking again), Brown says it’s more common for farmers to start formally planning rotations about January. “Maybe only 20 to 30 per cent of the land can be changed to something else anyway,” Brown says. “You then look at the cost of production and at what prices are doing.”
Once the cropping plan is in place, Brown promotes forward pricing, especially as a way to cover costs. “A 10-to 20-thousand acre farm is a hugely risky operation. With 70 per cent of the land rented, for instance, the farm is hugely financially levered. If you pre-price a portion of the crop, you can then concentrate on production.”
“With large farms, the emphasis is on margin,” Brown says. “With high risk, they need to be more savvy marketers.”
Like the Maurers, Brown views the CWB as alleviating some risk. Producers receive an initial payment for wheat and barley and can plan from there. While you might be able to speculate a little more with lentils or flax, it’s critical to know the COP on non-board crops to know the price you need to get out of them. “You’ve got cash costs anywhere from $70 to $100 per acre depending how fancy the crop is,” Brown says. “And $100 to $200 non-cash costs.”
“The hardest part of marketing is forward pricing,” Brown says. “But you cover your costs and use the rest to take advantage of increased prices. And tell yourself this is what I will be happy with.”
While forward pricing is a good tool, Brown believes not more than 25 per cent of all farmers use it. But “if you don’t price crops until they’re in the bin, then you’re speculating as much as anybody. There is always the guy at the coffee shop who brags when he sells high, but he’s pretty quiet when he sells low.”
While more farmers are using forward contracts and some others use options to provide a minimum price guarantee, Brown believes most continue to market through price contracts available at their elevator company.
While he and other analysts seek to reduce risk on the farm through marketing approaches, Brown admits to some frustration with the inability of farmers to see the benefits of lower risk. He cites a study done many years ago that concludes risk taken out of one area will be incorporated into some other part of the business.
“The Gross Revenue Insurance program was one example,” Brown says. “Farmers took that money and plowed it right back into loans and other higher-risk areas so their overall risk ended up about the same as before.”
While the Maurers have never hired out their marketing, there are companies offering marketing information and plans on a fee-for-service basis. Most provide information with very little in the way of recommendations. And much of that information is general.
Ken Evans, farm business management specialist with Saskatchewan Agriculture, says it’s imperative to have a marketing plan specific to your farm. “FBMC specialists are trying to provide a systematic approach to marketing,” Evans says. “But we approve farmers to get funding for their farm marketing plans and what happens is they are given only one piece of the pie, which is information.”
Integration, ie putting all the pieces together, is what it’s all about, he says. “We’d like to see a holistic approach from the information to interpretation of the information and how it impacts a particular farm, right through to recommendations based on that individual farm.”
Photo Credit:Paper Moon Photography
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“ A 10-to 20-thousand acre farm is a hugely risky operation,” says Bill Brown. If you pre-price a portion of the crop, you can then concentrate on production.
