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Marketing Strategies
Professionals explain why it pays to have a plan

By Carroll Smith
Editor
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Farmers across the United States, including rice farmers, are always looking for ways to improve their farms and take advantage of the newest technology. From a production standpoint, most are well versed in what it takes to grow the best crop possible.

From a marketing standpoint, however, some farmers still do the same thing they have done for years. Harvest their crop, then sell it for whatever the cash price is at the time. Despite having a state-of-the-art production plan, doing a poor job of marketing can cause you to lose money even though you had a bumper crop.

Carl Frein, with Farmer’s Marketing Service in Brinkley, Ark., sites several potential reasons why some Arkansas farmers don’t have marketing strategies. He specifies Arkansas because these are the people and the state with which he is familiar.

“For years, Arkansas has been a cooperative state where the co-ops do the marketing for farmers through seasonal pool programs,” Frein says. “Another reason is that a lot of our farmers didn’t have any, or much, on-farm storage. I see that changing now that more of the younger farmers are going into business and putting up grain bins. They also are taking commodity futures classes to better understand the markets.”

What Was Different 25 Years Ago?

Frein also explains why it wasn’t as important to have a marketing strategy 25 years ago as it is today.

“Back then, input costs were more manageable, and you didn’t have the wide swing in costs, such as fertilizer, that you do today,” he says. “Also, 25 years ago, if there was a dollar swing in soybean prices for the year, that was pretty big. Recently, we had a 67-cent move in one day. That would have been two-thirds of a whole year’s move 25 years ago.

“Today’s markets are volatile, and although volatility creates opportunities, you have to have a plan in place to do what I call ‘reward the market,’ which means sell in increments when the market rewards you with a good price,” Frein adds.

Tips For Marketing In Today’s Environment

The Arkansas marketing consultant makes the following recommendations for farmers who are interested in developing a sound marketing strategy or even improving upon the one they already have.

1. Determine what your production costs are going to be for the upcoming season as closely as you possibly can.

2. Forward contract about half of what you are expecting in production and use futures and options with the other half of the crop to try to lock in prices.

3. Deal with a banker who understands the markets. Separate your crop loan from your hedging loan and make sure your spouse knows what is going on.

4. Invest in grain bins. You will have more marketing options and not be forced to sell your grain at harvest time. Plus, you’re not having to pay storage.

5. Look at a price chart once a week of the particular commodity that you are growing to see what the trends are. You can subscribe to a charting service or look it up on the Internet. The Chicago Board of Trade (CBOT) has daily charts.

Importance Of Watching ‘Commitment Of Traders’

“Every Friday afternoon, I watch the commitment of traders – who did the buying and who did the selling,” Frein says. “There are large traders (fund traders), commercial traders and unreportable smaller traders (35 contracts or less.) Commercial selling is usually linked to farmer selling, and commercial buying is linked to countries buying from the United States.

“When I see commercial buying, that’s a good sign. The market may be going higher,” he adds. “Heavy commercial selling tells me that farmers are selling, and the market may be going to go lower. It tips you off. For example, if you feel the market is going to go lower, you may want to sell some more of your crop.”

Consider Reducing Your Exposure To Risk

Even if farmers pick up on these suggestions, they may not want to market their crop by themselves. It can be an emotional and time-consuming issue. If this is the case, then hire someone to help you just as you would hire a crop consultant or an aerial applicator, for example.

“Your margin of error is much smaller than in the past because of the cost of inputs today,” Frein says. “There used to be very little change in input costs. Now, diesel and fertilizer prices are all over the board. Farmers are getting so much exposure to risk. My job is to take out some of that risk by pulling the trigger when it needs to be pulled and locking in these prices so you know you are going to be in business another year.”

Contact Carroll Smith at (901) 767-4020 or csmith@onegrower.com.


Q&A

EDITOR’S NOTE: Following is a recap of Rice Farming’s recent interview with Markham Dossett, Owner and Chief Broker, Talon Asset Management, LLC, Waco, Texas.

Q. Why does this year – 2010 – constitute a tremendous lesson in how important a good marketing plan is?

A. The markets have been very volatile this year, and supply and demand have been changing weekly because of tremendous weather problems throughout the world in Asia, Eurasia, southwest Asia and America. If you don’t have a solid marketing plan, it’s easy to get confused and emotional about the way these markets are moving. Throw in with that the amount of influence by the major hedge funds and long-only index funds, and it really is difficult to make decisions in the heat of battle when the markets are running up and down and are very, very emotionally charged.

Q. What is the goal of a good marketing strategy?

A. The goal is to get the best average price. If you go into the year with a definite marketing plan, you’ve got to have some flexibility. You have to have some goals and discipline regarding selling, and you still may not get the best average price. But, if you have a good plan and scale into your selling as the season goes forward, as the year unfolds and we have interruptions of supply from some countries and increases in demand from others, you will hopefully get the best average price. This year is a perfect example of that in rice, wheat and corn.

Q. If a farmer needs help in developing a good marketing strategy, what should he or she do?

A. First, work with somebody you can trust. You can either use a futures broker who deals with a lot of people on the cash side of the industry or a marketing consultant. There are some who are not futures brokers. They hedge through futures brokers, but they just have a service, which is dedicated to helping farmers price their crop through the use of futures, options and cash contracts. And some farmers like to use cooperatives.

Q. Why is it important for farmers to be cognizant of unusual weather around the world?

A. Unusual weather events that occur throughout the year can affect commodity prices because we are in a global market. That’s why it’s important to scale into your selling – take a measured approach executed over a period of months. This year, if you sold too early, you left money on the table. Anybody who sold their rice because the crop was huge all over the nation and all over the world has missed the price increase because of excessive heat in Arkansas, excessive floods in Thailand, drought in Vietnam, floods in Pakistan and now typhoons in India.

That’s one of the things that a marketing consultant or a good futures hedging broker can assist you with is watching this international weather. I provide that service for my customers, so the farmer doesn’t have to pay $2,000 for an international weather man. He can rely on his broker or his marketing consultant. We have to be aware of the unfolding drought in Russia or the floods in China. That’s usually not something that’s on the evening news.

Q. What other advice for farmers do you have related to good marketing strategies?

A. Be aware that the crop is not produced just in the United States, and the price is not influenced just from here either. For example, the price may be influenced by a problem at harvest in South America and from China’s demand and its crop.

I also think it is important for a farmer not to rely on his memory for prices. Get a copy of the charts for that year and the previous four or five years. Look at seasonal highs and lows. They don’t always adhere to the pattern, but over a long period of time, you get an idea of when the highest prices come and when the lowest prices come. Being aware of what is possible from studying the past few years is very important to making good marketing decisions.

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