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Cattle & Corn Comments (Jan 02, 2013)
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New Year’s Marketing Resolutions

It seems that pop culture almost demands that we make some New Year’s resolutions about improving our health, relationships, and other social dimensions of our lives, yet few of us successfully keep those resolutions past the end of January. So, this year maybe those of us in farming and ranching should consider some ‘agricultural marketing’ resolutions, in addition to those more-common resolutions, so below I offer some potential resolution ideas to improve your marketing in 2013. And, who knows, maybe they’ll be easier to keep than your New Year’s diet and exercise program!

Create enterprise budgets. This seems overly simplistic, but it is at the heart of a good farm management and marketing plan. Having detailed revenue and cost projections for each enterprise on your operation can help you allocate your scarce resources (i.e., land, labor, and capital) amongst possible enterprises to make the most money. Importantly, it also enables you to calculate a break-even cost of production that becomes an important benchmark when making marketing decisions. Realize that a good enterprise budget isn’t an easy task – plugging in some cash costs, like seed that is prepaid, is straightforward, but estimating per-acre machinery costs and forecasting yield is much more difficult.  There are a lot of good budget tools available from South Dakota State University Extension and other surrounding land-grant universities, so search the web to find some templates that work well for your business.

Write a marketing plan. It’s possible that your lender requires a written marketing plan and enterprise budgets, but even if he/she doesn’t, a written marketing plan is an excellent guide for making marketing decisions through the year. While there is no one standard set of items to include in a marketing plan, some useful items include: a) your marketing objectives/goals; b) calculation of your break-even cost of production; c) analysis of your cash flow requirements; d) your marketing alternatives; e) tools and strategies to consider using (i.e., futures, cash forwards, HTA’s, crop insurance, etc.); and f) what strategy you plan to follow. Having your marketing plan written on paper (or your computer spreadsheet) doesn’t mean it can’t be changed, but having a record of it will not only enable you to review it later, but it will insure you invest thoughtfully in the process.

Embrace volatility. Markets have become increasingly volatile in recent years, and it doesn’t appear like that is going to change this year. Volatile markets increase the need to understand and use a variety of risk management strategies, so invest some time this winter learning about a new way to manage marketing risk for your operation (this doesn’t mean you have to use it, but continuously learning something new will help you be ready for future events). Part of resolving to embrace volatility in 2013 is about attitude. While large and fast price changes can be quite frustrating, remember that volatility brings higher highs along with lower lows, so there are marketing opportunities that exist at more favorable prices than would exist in a static market. A positive outlook can go a long ways to identifying and quickly taking advantage of a good situation.

Market according to margins. By knowing your break-even cost of production and admitting that markets are so volatile that picking the high for the year is next to impossible, you can move into a decision framework that involves making marketing decisions when it results in a positive margin for your enterprise. In other words, rather than focusing all your efforts at buying at the lowest price of the year or selling at the highest, concentrate on making buying and selling decisions that provide an acceptable profit margin. Although it may be more conservative, it’s becoming increasingly necessary as volatility increases. One way to protect margins, whether for livestock or crop production, is to time output sales or hedges with input purchases on a dollar-for-dollar basis as long as a positive margin exists when you’re buying the inputs.

 

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