Many factors influence your selling plan. They include politics, weather, and supply and demand fundamentals. But some of the most important start at home, including personal feelings, attitudes and financial requirements.
The better you understand how and why these factors should or should not influence your plan, the better and faster you’ll be able to compensate to changes in price outlook.
Personal feelings and attitudes
Farmers aren’t all the same. Some enjoy watching markets, others don’t. Some like being more creative, using a wide array of pricing and delivery alternatives, while others are more at ease with a simpler and more conservative selling approach.
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At the same time, marketing is far from an exact science. Information that continually floods the market can be confusing or even contradictory. As a consequence of the speed of information, markets often quick to buy the rumour, but sell the fact once the full extent of the information is known. Markets are notorious for overreacting to information, pushing prices too high and then too low.
Your ability to handle this price uncertainty influences your plan and the marketing tools you use. Can you handle risk well or are you risk averse? Many marketers use their skills to reduce price risk for both old crop sitting in the bin and even for new crop not yet planted. The danger is you can get caught ballooning price risk beyond your capacity to cope. Then the process of marketing becomes stressful. Relieving this stress can be the sole reason to hone your marketing abilities.
You must decide if you are a speculator or a price risk manager. The word “speculator” often conjures up a negative image. In reality, however, these traders are astute business managers. They are trained and experienced professionals who minimize risk for their corporate customers.
Some grain producers are also speculators, gambling on growing or storing unpriced grain in an attempt to hit the top of the market. Again, though, this isn’t necessarily bad, providing the speculator controls emotion and is aware of the financial consequences.
In fact, farm marketers are usually a mix of speculator and farm business manager. You probably are too. To find out, take a look at the following description of the characteristics of both. Which pieces of these two different characters describe you?
THE FARM SPECULATOR: Day-to-day market swings are watched closely by the farm speculator. A farm speculator’s goal is to sell at the peak of market prices. This individual calculates the money lost if the top of the market is missed. Selling is considered a totally separate part of the farm business. If in a jovial mood this individual may be heard in the coffee shop bragging “I remember when I sold a truckload of grain at the peak of prices.” But if this person is in a sombre mood a different statement is overheard “Whenever I sell, prices rally, whenever I don’t sell, prices crash.”
THE FARM BUSINESS MANAGER: A plan for long-term growth is foremost in a farm business manager’s mind. A farm business manager calculates production costs and assesses cash price needed to cover expenses. This individual often includes marketing objectives in the farm’s financial and production plan. It is very important to always make a profit In fact, in the local coffee shop, a farm business manager may be overheard saying, “I sold my grain at a profit.”
You can probably see yourself as part business manager and speculator. This is normal, but being aware of the differences in the two marketing behaviours, and learning how to tell when you’re being one or the other will help you gain the discipline required to become a successful marketer.
Financial needs
Concentrating all your efforts on one aspect of your business is not good management of your time. Often, growers put most of their energy into the production aspect of the farming operation. The problem is, you’re only as strong as your weakest link. The benefits of high yields are wasted if you are a poor financial manager or weak marketer.
The farm is a whole. Producing grain, monitoring financial health and selling at a profit are one and the same. If product quality fails, prices and profits fall. If money is a constraint, product volume, quality and cash flow slip. If you sell into the bottom third of yearly average prices, part of the time you spend on the tractor should be spent getting to know your buyers better. They all tie together.
Price outlook
The third and most unpredictable factor influencing a selling plan is price outlook. Price direction can be analyzed by two methods. First, there is supply and demand assessment, commonly known as fundamental analysis. Secondly, there is the analysis of chart formations, known as technical analysis. Seasonal price patterns should be reflected in your marketing plan. Harvest markets are typically depressed markets. Spring and summer markets have the greatest odds of a price rally. Depending on time of year, markets have the tendency to be either above or below the yearly average price.
Every month, your price outlook should be reviewed. Internet and satellite technology can allow this to be one-stop shopping experience. But if you don’t have access to these information supermarkets, check a variety of market opinions. Just use the telephone.
Remember, though, that it is possible to focus too much on price outlook. Personal attitudes and financial needs are every bit as important as components of a marketing plan, and they fluctuate too.
Errol Anderson is a commodity broker based in Calgary and author of the daily farm risk management market report “ProMarket Wire.” He can be contacted at (403) 275-5555
