When you decide on an overall shape for your marketing plan, your financial position needs to say a lot about its direction. The farm business has to be viewed as a whole, and in an important way, whether you’re producing crops and livestock, managing your financial health, or selling at a profit, you’re doing the same job.
If product quality is poor, your prices and your profits suffer. If operating capital is a constraint, product volume, quality and cashflow also slip. If you routinely price your grain into the bottom third of yearly average prices, part of your day should be spent getting to know your buyers and your marketing toolbox better. They all tie together.
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Here’s a Western example of what a disciplined marketing plan might mean to a farm business. The price difference between selling canola into the bottom third versus top third of average yearly prices can be nearly $100 per MT or $2/bu. That can be as much as an extra $80 to $100 profit per acre.
Your average yield would have to improve nearly 10 bushels per acre just to compensate for undisciplined marketing.
To assess a marketing strategy suitable for a farm operation, there are three key elements to review. You need to take into account your level of debt, your bill payment schedule and your cost of production.
Step one of a marketing plan starts with the balance sheet. Your balance sheet is a snapshot of your farm’s financial position at any given moment. By calculating net worth or owner’s equity (assets minus liabilities), you begin to measure risk.
The debt-to-asset ratio is an important indication of your ability to bear risk. Calculate it by dividing total liabilities by total assets. The higher the debt-to-asset ratio, the lower your risk-carrying capacity. and the more important a marketing plan becomes for business success.
You may want to draw up a delivery plan as well. Simply write down any reasons that affect your decision to start up the auger and head for town. For instance, jot down a list of bills to be paid, storage problems that need to be dealt with or the right price you’ll accept. Table One an example of a sales road map that a farm manager may use as a guide.
Calculating production cost is the first priority for decision making with any selling road map. Then assess how much profit per acre your family needs to live on. Plug these prices into the table. Now you have some price benchmarks to start from.
Your sales roadmap should show only those months when you’re likely to sell. In the price column, set your profit targets. Take into account basis and carrying charges when setting price goals. With everything written down, you know exactly when you need cash and what price you’re looking for.
Remember, though, that this roadmap isn’t meant to be cast in stone for the entire year. It is always changing.
Each month, talk with your market contacts and review your price targets. A written plan helps you keep close track of your inventory and evaluate your success as a marketer. On each sale, write down why you decided to sell. If the market goes up after you sell, just look back and see why you made your pricing decision. Remember, no one can sell at the top of any market without considerable luck.
No doubt, being a farm marketer is as much an art as it is a science. But you can hone your skills. Stay up to date on any improvements and changes to your marketing toolbox. There are times when cash contracts are your strongest marketing alternative, and there are times when a commodity-trading account can add to your pricing flexibility. Take winter marketing courses when possible.
Plan your destiny and design your fate. That’s a real strength of a marketing plan. Finally, be proud of the profitable prices you achieve.
Errol Anderson is a commodity broker and author of the daily farm risk management market report “ProMarket Wire.” He can be contacted at (403) 275-5555 in Calgary or email:[email protected].
