5 marketing secrets of the best managers - last in a series

5 marketing secrets of the best managers - last in a series

Boom or bust, here is how top farm managers build a better (and more profitable) business through marketing.

In parts one, two and three of this series we shared ideas from some of the leading farm and business gurus. In this last entry in the series we’ll focus on marketing secrets. It’s part of our ongoing effort to help you sort through your toughest business challenges.

Marketing is one of your toughest business challenges. (Photo: Zoonar O. Kovach/Thinkstock)

1. Price products and inputs at the same time. Another oldie but goodie, so pardon us for repeating ourselves. A lot of people don't think about protecting the cost side of the business; they only protect the selling side of the business. It's time to rethink that approach. "Buy inputs and sell commodities and cash match at the same time," says Purdue Ag Economist Mike Boehlje. “Too often we speculate on buying inputs and speculate on selling products. This way you lock in margins. If you buy $10,000 worth of fertilizer you sell $10,000 worth of grain.” 

2. Factor in ARC payments, if any. USDA released 2015 county yields for corn and soybeans Feb. 18. These aren’t the same as those used by the Farm Service Agency to calculate ARC payments, but they should be close enough to calculate your projected payments, if any. Accurately judging this revenue can help you weigh overall risk from storing inventory into summer. While average cash prices used to figure revenues won’t be settled until September, they normally don’t change dramatically in the second half of the marketing year.

3. Base marketing decisions on risk, not outlook. This is a good policy every year, but it’s crucial when prices are low. Predicting where commodity markets are headed is difficult, if not impossible. But you can analyze your farm’s financial position to determine where to draw your line in the sand against lower prices. Decide now if you can afford to take the risk of waiting for rallies, or if you need to sell to minimize losses. Placing sell stops below the market to trigger automatic sales is one way to make sure you plans follow through. Raising those triggers by using trailing stops if the market rallies is another way to take advantage of whatever gains pop up.

4. Avoid time value decay in options. Options are a great idea. But more than 350,000 December corn options expired worthless toward the end of November because they were out of the money. Some of those positions cost a lot of money when initially opened, premiums that evaporated as expiration neared due to time value decay. Now, it can make sense to forward price grain and purchase calls as a defense against rising prices or to purchase puts to defend against falling prices. Holding options for a long time may not be necessary. Instead, carefully judge whether the options are still needed. Also consider using short-dated options with limited lifespans for protection during specific periods of risk, such as a major USDA report.

5. Target risk. Another way to lower options expense is to sell other options to defray their cost. Selling an out-of-the-money call to help pay for a put is one example of this. Covered options can also lower risk, though they cap gains too. Selling an out-of-the-money call option on grain inventory is one way to earn premiums to lower storage costs. Selling a put below the market after forward pricing expected production is another. Rolling options up or down to capture profits is yet another strategy to make sure you capture something from a market move that doesn’t last. Just beware the pitfalls of overtrading. And remember: the risk of selling options can be just as great as using futures directly.

TAGS: Soybean
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