If you feel that marketing is getting tougher all the time, you aren t alone. Volatility in grain and oilseed pricing has increased dramatically, so it s no wonder farmers are having an even harder time pulling the trigger.
The more volatile the markets, the more paralyzed with fear farmers become, says Scott Irwin, chair of ag marketing at the University of Illinois.
Markets react with head-snapping speed, says Irwin. There is a bigger opportunity for huge mistakes.
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There are two main reasons farmers don t sell, agrees Wayne MacLean, market analyst with DePutter Publishing Ltd., a market information service in London, Ont. The first is that they are afraid the price is going to go higher tomorrow and they ll miss out if they sell too soon. The second is that the price was higher yesterday, they missed it, and they hope the price is coming back.
To help manage those stresses, try these recommendations:
GET INFORMED.
Develop a likely viewpoint of where prices are going and the likely ranges, says Irwin.
Then get plugged in. Even watching the news is helpful so you re aware of events that could be affecting commodity prices. For example, markets dropped following the tsunami in Japan earlier this year.
And stay plugged in. Farmers may miss opportunities because they are busy seeding or harvesting and aren t aware of what s happening in the markets, warns Steve Kell, grain merchant with Parrish and Heimbecker Ltd. in Mississauga.
KNOW YOUR COST OF PRODUCTION.
Figure out what you need to cover your costs, and make your marketing decisions based on that, says Kell. Even if prices are high, knowing your costs will let you focus on what the sale can mean for you, your family and your operation.
DEVELOP A MARKETING PLAN.
Make a plan with clear marketing objectives and write it down, advises Kell. Farmers are more emotionally invested than other business owners, he says. Being structured takes some of the emotion out of it.
Using your cost of production, set goals for selling, says John Lanthier, CEO of Market Smart Inc., an advisory service in Tillsonburg, Ont. For example, when a specific price target is met, sell a predetermined percentage of the crop.
Also take advantage of anticipated price rallies. Watch seasonal weather fears. By taking advantage of rallies you can avoid a forced sale for cash flow, MacLean says.
Irwin recommends keeping the plan simple. Focus on the basics. Don t get too caught up in sophisticated strategies. Tread lightly on forward selling.
Most farmers will admit that they could improve their marketing skills. Market advisory and information services can help them make and execute that marketing plan, says Kell.
There s al so some psychology involved. Farmers will be more likely to follow through on the plan, Kell says, if they are accountable to someone, even if it s only to their broker.
KNOW YOURSELF.
Recognize your risk tolerance and your marketing style. Your marketing plan must match your personality, says Kell. Otherwise you won t follow through with the plan and it will be a waste of money.
DON T SECOND GUESS. Too many times farmers don t follow through because they know how badly they ll feel afterward if it wasn t the best timing, Lanthier says. Once a selling decision has been completed, live with it and move on. The bottom line is, crops must be sold to raise capital.
DON T LOOK FOR THE IMPOSSIBLE.
Market volatility isn t going to cure itself, at least not any time soon. Multiple forces are contributing to the volatility, including bigger plays by even more non-ag speculators in the commodity markets. Lanthier adds that an increase in the number of investment tools available to traders has increased the speculative dollar flow into agricultural markets resulting in bigger market movements.
With the number of speculators participating in the markets now, commodity price changes are affected by more than farm fundamentals. Stock market gyrations, economic reports, changes in crude oil prices or gold markets, and weather reports from around the world all cause market swings.
Improvements in information technology also add to volatility, says Lanthier. Information moves at a faster pace all the time as traders take advantage of Twitter and other media, he says. Computers are also trained to digest news headlines and make trades in rapid response.
Limits are also expanding to allow bigger price movements on any given day, Lanthier adds. For example, the Chicago Mercantile Exchange recently agreed to expand the trading range for corn to 40 cents.
We re in an era of shortage rather than abundance, continues Irwin. The rules are different.
Global demand is increasing with the expanding middle class in developing countries. Plus, new technologies such as biofuels are also putting increasing pressure on supplies.
A decade ago, watching corn move five cents was a big market move and the market wouldn t change by 50 cents in an entire year, points out Lanthier.
All this means that producers are in new territory when it comes to marketing. For example, corn prices are at historical highs with prices doubling in the past year.
Everyone s searching, says Irwin. What s a good price? What s a bad price? CG
