Which Marketing Strategy Should I Use and Why? John Hobert Farm Business Management Program Riverland Community College.

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Presentation transcript:

Which Marketing Strategy Should I Use and Why? John Hobert Farm Business Management Program Riverland Community College

What is the normal selling curve for farmers today? u 8-12% of farmers sell their produce in the GREED stage. u 5-7% of farmers sell their produce in the HOPE stage. u 12-24% of farmers sell their produce in the FEAR stage. u 57-75% of farmers sell their produce in the PANIC stage.

Normal Selling Stats for Corn and Soybeans by Producers u Better than 60% of all corn and soybeans are sold in the lower 1/3 of the market. u Less than 10% of all corn and soybeans are sold in the top 1/3 of the market. u Utilizing the simplest of marketing plans should improve your chances in the marketing of farm products.

What are Some of the Marketing Tools available? u The Cash Market u The Forward Contract u Hedging u Delayed Pricing u Government Programs u Options u Animal Feeding

More Marketing Tools. u Sell Cash-Buy Futures u Alcohol Plant Agreements u Speculating u Others?

Advantages of the Cash Market in General u It is widely used and well understood. u You can sell most anytime. u No cash is involved other than transportation. u The price is known immediately. u Others?

Disadvantages of the Cash Market in General u You lose flexibility. u All sales are irreversible. u Cash prices are tied to local conditons. u Others?

Advantages of the Forward Contract in General u You lock in a price for future delivery at a certain location. u The most widely used and understood of forward pricing alternatives. u It is simple and legally binding. u It usually can be made in any amounts. u There are no margin calls. u It eliminates second guessing.

Disadvantages of the Forward Contract in General u You have yourself locked in and have thrown away the key. u You have no advantage from a narrow basis. u Others?

Advantages of Hedging in General u You increase your market flexibility. u You extend your marketing season. u You capture basis gains without speculating on basis. u Others?

Disadvantages of Hedging in General u It requires learning a new marketing skill. u You require margin money to maintain your account. u You need a specific amount for a given contract. u You require self discipline to avoid speculating in the Futures.

Advantages of Delayed Pricing in General u It eliminates pricing at harvest. u You can establish your price at a later date. u It eliminates on farm storage. u Up to 70% of the value of the commodity may be received at the time of delivery.

Disadvantages of Delayed Pricing in General u You lose title to the crop upon delivery. u You become a common creditor, not covered by state or federal regulations. u In case an elevator declares bankruptcy, you will be at the back of the line to get your money. Some have lost money in this manner.

More Disadvantages of Delayed Pricing in General u You could end up with a high service charge which could be greater than the cost to carry in a delayed pricing contract. u You could end up with a Basis Fixed Contract with a basis set too wide. u Problems have occurred in recent years with this marketing method.

Advantages of Government Programs in General u They provide you with a valuable cash flow tool when you need it. u You maintain ownership of your commodity. u Receiving your loan is quite immediate. u The interest rate on CCC loans are low as compared to most ag-lenders.

Disadvantages of Government Programs in General u You must consider your return after storage, interest, shrink, opportunity cost, and possible risk factors such as spoilage. u You need to keep up-to-date on market changes after implementing your CCC loan to make the best decision as to when you will reverse your loan.

Advantages of Options in General u Your risk is limited to the cost you have to pay for the premium on your option. u You have unlimited profit potential. u You maintain flexibility. u No margin money is required with options. u Look at it as commodity insurance.

Disadvantages of Options in General u Options requires learning a new marketing skill puts, calls, etc. u Options premium costs may take away all profit potential. u Because options are tied to futures, basis risk still exists. u Selecting the most profitable premium is a problem with options.

Developing a Personal Marketing Plan is the key! u So.....what will we attempting to accomplish monthly through this marketing group? u An Educational Delivery each month on a specific marketing topic by Riverland Community College FBM Staff. u A Marketing Update monthly by Staff from Ag-Partners Cooperative. u Group Discussion on marketing concepts.