| | Good marketing - a twelve step program | Farm marketing self-test -where do you come out? | So what's it mean to me?
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How many farm managers "sell" their crops or feeders when they think the price is right or when they need cash flow? Someone once told me that selling is just getting rid of what you have.
Astute farm managers "market" their crops. Marketing is planning to have what you can sell at a good price.
I’m often asked what "good farm marketing" is. First, however, let’s look at what good marketing is not. A good farm marketer is not someone who:
- lives, eats, drinks and dreams "the markets".
- knows the price of nearly everything, everywhere.
- is prepared keep feeders or to store crops "till I get my price"
- tries to pick the price peak to sell everything at that time.
Marketing, like most things on a well-run farm or ranch, is a well-planned management activity. It’s not an after-thought.
Good Marketing - A Twelve Step Program
Here are the twelve steps to better farm marketing. Following those twelve steps does require some time but these twelve steps pay handsome farm income dividends.
Step one - using market signals to help decide what to produce
A farm manager’s first marketing decision is deciding what to produce. The cow-calf producer might ask himself, ‘Do I sell weaned calves?’ ‘Do I background my cattle?’ Do I finish my steers?’ ‘Do I sell bred heifers?’
The crop producer might decide between three or four or more different crops. Yes, those are all production decisions but they’re also very important first marketing decisions.
Sometimes farm managers decide what to produce first and then try to find a profitable sale for their production. That’s a potentially damaging decision for the farm business.
Price is the signal the market place uses to tell farm managers what to produce. Astute farm marketers gather price information as well as market outlook and price forecasts before deciding what to produce. Use Steps Two and Three to help with deciding what to produce.
Step two - figuring breakeven price
How can any businessman, farm manager or otherwise, know what market price he needs for each of his products if he doesn’t know what his breakeven price (BEP) or cost of production is? He/she can’t, of course. Certainly, we never know what is the exact BEP for a bushel of canola or of a pound of weaned calf or a pound of finished steer is until after it’s produced. Astute farm marketers work with realistically estimated BEP. They know it’s far, far easier and better to make good marketing (and production) decisions with good BEP information than with little or none at all.
Step three - setting farm target prices
Breakeven prices are very useful for helping develop farm target prices for each product. I recommend calculating three target prices - Survival Price, Acceptable Price and Favorable Price. The Acceptable Price is the farm’s BEP for each kind of livestock or crop plus that product’s share of family living costs. The Favorable Price is the Acceptable Price plus a return to management. The Survival Price is the cash outflow per unit of production including family living costs - basically the lowest price a farm manager can accept for each farm product for one year.
These three target prices are incredibly useful marketing decision tools. If the market price for a product is at or above the Acceptable Price, the farm manager knows it’s time to seriously consider making marketing or pricing decisions. If market prices are near, at or above the Favorable Price, the farm marketer is getting a marketing message, loud and clear - "do something".
Step four - setting market target prices
Market Target Prices are realistic estimates of prices that the market will likely offer. During the 2003-04 BSE market disruption some packers are or were offering forward price contracts for finished cattle. Those market target prices, together with calculated breakeven prices, were very handy for helping cattlemen make marketing decisions about whether to finish animals or not.
For example, in March and April, 2004 many crop market analysts were suggesting that $7.50 to $8.00 per bushel ($330 to $353 per tonne) would be a very good price to lock in a part of the expected 2004 canola crop. Astute farm marketers used that price range as their market target prices to help them make good market pricing decisions.
Step five - knowing cash flow needs
Astute farm managers know their cash flow requirements in detail and use them to plan pricing and other marketing decisions. Knowing cash flow requirements helps make pricing decisions in advance of actually delivering farm products so that cash is available for large outflow items. Last-minute farm product sales to meet farm payments or personal commitments are often pressured, unwise sales.
Step six - knowing your product quality and quantity
Astute marketers know it’s hard to effectively market a product when the quality is unknown and the quantity is uncertain. Astute marketers get an independent assessment of the quality of their farm products. In the livestock industry, there are skilled and knowledgeable persons that can give quality assessments based on a visual appraisal. Invite them out for a look at your livestock. The Canadian Grain Commission is very helpful in assessing crop quality.
Also, there are different markets for different quantities of any farm product. Astute marketers know exactly how much product they have to market. Weight, for example, is an important measure of livestock quality (and quantity). A scale is much better than your eyes and is probably better than your neighbor’s eyes.
Step seven - understanding and using appropriate pricing alternatives
There are many different pricing alternatives for most farm products ranging from a direct cash sale to hedging to a number of different forward contracts. All of these alternatives have their place in farm marketing management. Astute farm marketers understand and are prepared to use these different pricing alternatives, at appropriate times, to manage their marketing.
Step eight - knowing cash market alternatives and buyers
Astute farm marketers search out as many potential market alternatives and buyers for their products as they can find. Each market alternative or each buyer may provide a market opportunity for a better price, better delivery conditions, better timing or all three.
Step nine - merchandising your products
Buyers of farm products spend a great deal of time trying to source the products they need. Astute farm marketers merchandise or promote their products to as many buyers as they can. They get to know the potential buyers. They send, or better still, they deliver a product sample to each potential buyer. Yes, it’s tough to take a sample live animal to each buyer. Instead, invite them out to look at your stock.
Step ten - using timely market information
Astute farm marketers do not make decisions in a vacuum. They use up-to-date market information to make informed market decisions. Certainly good, comprehensive market information costs something, but it pays very large dividends.
There is a great deal of good farm market information available. Two other Market Clippings: "Market Information Sources for Western Canadian Farms" and "No-Cost Market Information on the Internet" - provide a very complete list of information sources. Copies of those newsletters are available from the author or on the World Wide Web at:
http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis7483
Step eleven - making a marketing plan
Marketing is a planned activity. Astute marketers develop a marketing plan based on the information they’ve gathered in the previous 10 Marketing Steps. Many have told me that writing down their marketing plan is very, very helpful because they are then much more likely to carry it out.
Step twelve - sticking to the plan
One of the greatest enemies of a well thought out marketing plan is changing it based on second guesses or "coffee-row" advice. Certainly, markets are always changing but good decisions are still good decisions. Stick to the plan and only re-evaluate or adjust it for new circumstances or accurate new information.
Farm Marketing Self-Test - Where do you come out?
Put an “X” in the box at the end of each statement, that best describes your marketing management
.
 | Question | Yes | Some-
times | Never |
| 1. | I use market signals to help me decide what to produce. | | | |
| 2. | I calculate detailed a Breakeven Price (BEP) for each product. | | | |
| 3. | I use BEP's to set Farm Target Prices. | | | |
| 4. | I set realistic Market Target Prices based on good market analysis and outlook. | | | |
| 5. | I know my cash flow needs in detail. | | | |
| 6. | I accurately know the quality on each farm product and I know the quantity of each product I have. | | | |
| 7. | I understand and use various pricing alternatives such as forward contracts, basis contracts, or hedging to price my products. | | | |
| 8. | I prepare a list of all the cash market alternatives and buyers for each product I produce. | | | |
| 9. | I merchandise my products by sending or taking samples of my products to as many potential buyers as possible. | | | |
| 10 | I receive and use up-to-date market information including current prices, market analysis, outlook and strategies. | | | |
| 11. | I plan the marketing of my products, sometimes separating pricing from delivery, when it is to my benefit. | | | |
| 12. | I stick to my plan, only making changes based on reliable new information, not coffee-row talk. | | | |
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Scoring the self-test
Give yourself two points for each "Yes", one point for each "Sometimes" and zero for each "never". A score of 20 to 24 is the sign of a very astute marketer. A score of 14 to 18 is a pretty sharp marketer. Twelve or under suggests room for improvement.
So What's It Mean To Me?
Improved farm marketing means improved farm income. Contact any one of the Market Specialists with Alberta Agriculture, Food and Rural Development if you would like to improve your farm marketing skills. Market Specialists have considerable knowledge and experience teaching farm managers to improve their farm income by improving their marketing skills.
Did you know . . . . . . . . ?
To make good farm marketing decisions you need:
1. Price information - current market cash prices and, if applicable, futures prices.
2. Market Analysis - an explanation of what’s happening in the market place, how prices changed and why they changed.
3. Outlook - a carefully researched opinion on what market conditions and prices are expected to be in the future.
4. Market strategies- one or more suggested market strategies to deal with current and expected market situations. |
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