MARKETING YOUR CROP WELL IS JUST AS INTEGRAL AS GROWING YOUR CROP WELL
as the crop year comes to a close, many are busy evaluating their crops looking at yield and quality, analyzing this year compared to years past and making plans for next year. With a new crop year on the horizon, it’s important to plan not only production practices in the field but also the important part of farming that happens in the office, over the phone or online.
“Over the past 20 to 30 years, North American agricultural commodity producers have experienced tremendous successes on the production side,” says Victor Aideyan, Senior Consultant with HISGRAIIN Commodities. “The most significant limitation on profitability now seems to be commodity prices,” he continues.
Challenging commodity markets make developing a marketing plan for the crop an integral part of running a farm business. Some farmers spell it out on paper; others have their own marketing “rules” clearly laid out in their mind. No matter how it’s organized, having a plan can reduce stress and help manage risk.
Kevin Marriott, a grain and oilseed farmer from the Petrolia area, takes marketing very seriously on his 1,000 acre operation. “Marketing my crop properly is just as important to my bottom line as having the right production practices in the field,” explains Marriott.
When making a marketing plan, it is helpful to start by considering farm-specific goals and objectives; what do you want to achieve with your marketing? Aideyan recommends using the farm’s cost of production to help set the financial objectives for the current year. A proponent of a written plan, Aideyan believes that “financial objectives should be clearly defined and written down.”
Defining what these objectives are can be difficult for some as it’s not always a common practice on the farm. Aideyan recommends taking these objectives from what the farm needs to be successful as a whole. Locking in a profit to cover specific debt obligations or acquiring a certain minimum price to cover the cost of production are examples of objectives a marketing plan is striving to achieve in any given year.
Creating these goals can help overcome the emotional strain the markets can elicit. “Avoid the snare of being too concerned about hitting the highest price of the year,” says Aideyan.
With objectives firmly set and in place, it is now important to look beyond the farm to understand the external factors of the market.
One of the tools Marriott uses to help with his marketing is long-term commodity charts. “To me, charts are like a road map and you don’t go anywhere without a road map,” he asserts.
Among other things, commodity pricing charts help Marriott understand long-term trends and seasonality in the different commodities.
“A study of the annual pricing trends of commodities indicates that they have seasonal price tendency,” explains Aideyan. “These tendencies are the natural rhythm of increased and decreased supply and elevated and depressed demand.”
From years of studying pricing charts, Marriott knows that each commodity has its own seasonal dips and rallies. “With soybeans we tend to see a rise pre-planting and for wheat, the harvest low tends to come in June when the US crop is at its peak harvest,” he says.
The seasonality of the different commodities should be one of the key factors of creating a marketing plan. According to John DePutter of DePutter Publishing, a marketing plan which involves making multiple sales throughout the year can help spread out the risk associated with marketing.
“It helps you even out your risk, it helps your cash flow and it helps you sleep at night,” explains DePutter. Specifically, he often recommends making sales five or six times per year. “If you make a mistake by selling at the wrong time, then your mistake is going be a small one. If you sell one of those increments at a low point, it won’t be too bad if your average is good.”
In addition to charts and seasonality, Marriott, as a farmer, is also very mindful to pay attention to what he calls the “fundamentals”. Marriott explains that “fundaments are what the crop is doing around the world and in the US; they indicate the current supply and demand for a particular commodity. These fundamentals influence the market.”
For example, wheat markets went wild this past August in response to Russia banning wheat exports as they suffered from drought conditions and therefore opted to protect domestic supply first and foremost. This fundamental shift in the supply of export wheat, compounded by market speculation, resulted in dramatic swings in the market.
Such fundamental changes in supply and demand can override seasonal norms and in some cases alter those historically expected dips and rallies. “Farm managers attempting to use seasonality should be aware that if major shifts in demand or supply fundamentals occur, over time a commodity’s seasonal price tendency may change,” explains Aideyan. Ultimately, a good marketer needs to be aware of both seasonality and the current supply and demand situation in the global market. “Seasonality should be viewed strictly as a guide to historical ‘better price times’,” cautions Aideyan.
bringing it all together
Although no one can predict what the market will do, by combining internal factors like farm objectives and external factors like seasonality and supply and demand, a unique marketing plan can be created. This information should be the basis for determining the general timing and volume of crop to sell. Whether it’s laid out on paper prior to planting or deeply ingrained in the farm manager’s mind, having a plan can help remove the emotional aspect of marketing and maximize the value of your crop. •