Does it necessarily mean you’re poor at marketing if you aren’t actively engaged in daily trading? What if you have never done a paper trade, or if you haven’t ever locked in a private contract with a processer?
Does that mean you’re a bad farmer?
Obviously, the answer is no. It doesn’t have to mean that you’re leaving a big part of your job undone.
But then, it doesn’t necessarily mean that everything is hunky-dory either. In other words, maybe you do have some fairly clear marketing moves you could make that would be a gain for you and the farm.
The reality of commodity marketing is that it isn’t like selling cars or clothing. It’s not just about brand management and salesmanship.
Instead, farm marketing requires traits like inventory management and market analysis.
In fact, it can be difficult to rate the marketing tools since each year varies so much from every other year, and each farm varies from all the others. Plus, each strategy has its own risk-return profile.
It all adds up to what farmers have known all along. There’s no one-size-fits-all solution when it comes to farm marketing.
But there are ways of evaluating whether your system is getting the job done for you.
Fabio Mattos, professor of agricultural economics at the University of Nebraska-Lincoln and formerly at the University of Manitoba, is researching grain and oilseed marketing strategies and costs. Although he doesn’t yet have final results, one preliminary finding is that he couldn’t identify any single strategy that consistently outperformed or underperformed all the others over time.
Mattos says comparing different marketing strategies, such as selling everything at harvest or selling fixed proportions of the crop every month, is not exactly the same as discussing if we are good marketers.
So it’s tempting to adopt a default position of doing nothing and not selling until a decision needs to be made, such as at harvest. However, this can carry the most risk: It’s like betting your whole unsold crop on the chance prices will rise. Worse, it’s like betting against the well-established trend of lower harvest prices.
Even very few farmers who actively market regularly review whether the additional costs and effort invested in marketing are justified, says Terry Betker, president and CEO of Backswath Management Inc. Many of his clients benchmark their financial performance and their agronomic practices, but few look scientifically at how they performed at marketing.
Instead, Betker says they generally have a goal of being in the top third of the year’s average prices for each commodity.
Comparing against average prices is one of the more common ways to benchmark marketing performance. Sometimes pool prices are used as a benchmark, and others compare against an average yearly price or an average of pre- and post-harvest prices.
However, Larry Martin principal of Agri-Food Management Excellence and former professor at the University of Guelph, questions those strategies as a starting point. He’s currently working with BDO on a study of financial benchmarks for farmers. “Why would you try to market to the average?” he asks.
Benchmark against yourself
The trouble with analyzing your own performance is it’s easy to focus on a period of time, likely the recent past and on singular mistakes or wins. Or worse, we may compare our own results with other farmers who brag about top prices but fail to mention anything about their losses or even when they sell at average prices.
Instead, Terry Betker suggests benchmarking against yourself — go back and track the results of your previous marketing efforts. As little as three year’s information on how much you made per bushel minus your cost of production per bushel can create a usable trend line.
Instead of looking just at a specific time, compare year-over-year results. This will enable you to better see how changes or strategies had an impact on your performance.
Betker tells his clients to mine historical information for as far back as they’ve got accurate data. Then create a graph depicting the farm’s marketing results. The more years, the better the trend line and the more useful the information, he says.
You might want to add a line showing the average for the market, or break it down to each commodity, or lump it all together. Reflecting on what worked and what didn’t work leads to the question of why it didn’t work and what can you do to market better, says Betker.
Also, knowing these trends can help you justify investment in advice or the cost of some hedging strategies. Overall, the trends may also give you a clear picture of the efficacy of some strategies, or of having no real strategy.
What are your real goals?
“Regardless of what strategy we follow, I would argue the most important piece is to put together a comprehensive and well-thought-out marketing plan before we start marketing,” says Mattos. “Then we can think and determine our goals for the marketing season before we get entangled in the ups and downs of the market.”
A marketing plan starts by carefully calculating your actual cost of production and figuring out how much you’ll need to pay your bills. Also decide if extra money for capital investments is essential for the farm to be sustainable, and look at how much more that will actually represent on a per-bushel basis.
With all these pieces, a break-even price can be determined as a baseline for the marketing season, or at least as a stop-loss point. In effect, says Mattos, it’s your first benchmark.
It goes back to another of Mattos’s findings: “We are good at marketing if we set up a good marketing plan, follow it, and get to the end of the year with a profit and all objectives accomplished,” he says.
In a way, it can be the only definition. “Different people will have different marketing plans and different objectives,” he says, “which makes it hard to think of a single quantitative measure to determine whether this person or that person is ‘good’ at marketing.”
Yes, it does need to be on paper
A marketing plan should be comprehensive and detailed, but it should also offer some flexibility. Most important, it should be written down so the farm is committed to it.
Or here’s another way to say the same thing. Your marketing plan needs to be disciplined and do-able instead of some unspoken, overarching proposed philosophy.
“I see a lot of cases when farmers deviate from their plan during the marketing season,” Mattos says. “The results often turn out to be negative.”
Hiring marketing advisers has become more popular in Canada in the last decade. Ideally, the goal is to find a qualified adviser who will sit down with you as a client to map out a plan together.
Jonathon Driedger, senior market analyst with Farm Link Marketing Solutions, says that’s what they do and then usually follow up every month to see how it’s executing, followed by tweaks based on any changes to the market, currency, their analysts’ recommendations and what’s happening in the clients’ fields.
“A marketing plan is a living document,” Driedger says.
Driedger estimates only about a fifth of their grain clients use futures and options as part of their marketing plans. He finds the amount of hedging done depends on cash-flow needs and on personality as well as on experience and on risk tolerance.
Some people will choose to take more risk in order to have a chance for higher return, while others will prefer to take less risk even if it means accepting relatively less return. Betker finds that sometimes the more current debt a farm is carrying, the riskier the marketing strategy.
Also, the types of marketing tools a farmer uses depends on geographical factors such as proximity to processors, and what types of crops are produced in various areas. So farmers in southern Saskatchewan with primarily contracted crops, such as Durham wheat and pulses, don’t require as much hedging as someone growing just canola and wheat.
Each strategy will have its own risk-return profile. For example, selling everything in advance with a forward contract is a very low-risk strategy, but also offers no opportunity to obtain higher returns if the market goes up afterwards.
On the other hand, holding crop and trying to figure out when the highest price of the season will come is a very high-risk strategy, but it also offers the possibility of achieving a high return if the market actually goes up and we happen to sell at the highest price of the season. We need to decide the combination of risk and return we need and feel comfortable with, and choose our strategies accordingly, says Mattos.
“If it meets our objectives in terms of risk and return set in our marketing plans,” Mattos says, “then we are doing a good job at marketing.”