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As any farmer knows, it’s difficult to predict the future. In fact, it’s virtually impossible if you make your living in the agricultural sector.
Unforeseen circumstance such as drought, flooding and pest or disease pressure can often translate into low crop production and a dearth of product in your bins. Conversely, factors like a rail strike or a bumper crop can lead to bins that are full to overflowing with one commodity or another that may not be fully contracted.
It’s been said that life can only be understood backwards, but it must be lived forward. The same could be said of farming. While you shouldn’t ever forget yesterday, your focus needs to be on tomorrow.
That’s where an effective crop marketing plan comes into play. Crop marketing is a proactive approach to pricing your crop that contains a number of key factors including your cost of production, financial goals, cash flow, price objectives, storage capacity and appetite for risk. A marketing plan will help you reduce your crop price risk without having to try and outguess the market.
Crop marketing can be a tough and emotionally-charged exercise. And the unpredictable nature of markets can sometimes make it a humbling experience. But having a written plan helps develop purpose, expectations with farm partners and accountability and it can lead to improved cash flow, profit margins and working capital.
Jason Labossiere is a risk management consultant with INTL FCStone, a Fortune 500 company that provides financial services to more than 20,000 clients including farm-specific customized crop marketing and hedge plans. He says its critical for farmers to have an effective crop marketing plan because it can provide some much-needed control over price variances. Without one, he says, growers are more likely to be subject to price declines and a pipeline that simply can’t accommodate any more product.
So, how do you determine the marketing plan that is best suited to you? There are several things that should be included in any such plan including realistic margin targets and time triggers with quantities to sell, it should leverage multiple marketing tools, be able to track where you are positioned on each commodity and you need to go into it with patience and willingness to reevaluate your margins.
While a crop marketing plan can include some complex information, the plan itself should be relatively simple so that it can be easily implemented and shared with all stakeholders on the farm. The more complex the plan, the greater the chance of it not being used.
Labossiere also suggests that a marketing plan needs to be tailored to the specific circumstances of a grower’s operation, including their costs, needs, goals and succession plans. “Every farm has a different management style and different needs,” he says. “With every farm being unique they’re all going to have different situation in terms of bin space, cash flow, risk tolerance. By having a full plan…you’re looking after your business, you’re looking after your margins and you’re making a management decision that fits with your individual farm.” Once those details have been decided it’s important they are clearly and effectively communicated with family members. With a good plan in place, parents can assuredly have their son or daughter move ahead with confidence, because everyone is sharing the same objectives.
If you already have a crop marketing plan, it could be worth giving it another look to see how it might be improved and made more effective. As part of any such review, Labossiere recommends growers consider different strategies when it comes to marketing grain, remain disciplined and remember to “protect margin opportunities when they occur because you don’t know if they will be there in the future.”