There is nothing like a plan
Afew years ago, every agricultural meeting had a session on marketing plans. Now that commodity prices are much higher than they were back then, the experts don’t seem to focus on marketing with the same fervour. However, it is still important to have a plan and, perhaps, even more so as input costs have risen as well. How do growers know if they are getting their costs covered if they don’t have a plan?
“A marketing plan is about planning what you need to make from selling your crop in order to make money,” says Cal Whewell, a commodities broker with FC Stone in Bowling Green, Ohio. “You have to know your cost of production and then plan your marketing to cover those costs plus make money.”
However, it seems that the push to get growers to develop marketing plans has dropped off recently. Todd Austin of the Grain Farmers of Ontario says many farmers do maintain marketing plans, but just as many don’t. “Even in these times of good prices, costs are increasing, so how do you know how well you are doing if you don’t have a plan?” he asks.
“Growers seem to be getting complacent about marketing,” says Martin Vanderloo of Huron Commodities in Clinton, Ontario. “Right now there are peaks in the market, but that could change.” He suggests that, without a marketing plan, growers may not be able to adjust if the change is downward.
As an example, Vanderloo says the price of corn at the beginning of 2012 probably got many growers thinking about planting corn. However, they still need to stick to their rotation, so they may not be able to put in as many acres as they might like. Vanderloo predicts that a record may be set for the number of corn acres in spring 2012, but, if the weather co-operates, and the crop is good-to-outstanding, the rules of supply and demand will kick in. If that scenario comes true, the price could go down and what will that mean for growers?
“Farmers need marketing plans now more than ever,” Vanderloo comments. “There are currency fluctuations, increasing prices for land purchases or rent, rising input costs and these can all affect a grower’s marketing.” He says the high commodity prices make it seem like nothing can go wrong and, as a result, there are “some crazy things happening out there.” He says there are reports of land renting at $1000/ac on a three-year contract that has to be paid up front. Without a marketing plan, how would a grower know if this is manageable?
“It’s human nature to get caught up in the markets and to want the best prices we can get,” says Whewell.
“Sometimes if the plan is based on $6 corn and before the end of the year the price goes up or down, it can affect the way a grower feels about the success of the plan.” Marketing plans are designed using the information available when the plan is developed. Perhaps the price went up, he continues, and the crop was sold at a lower price, a grower can feel unsuccessful. However, it is important not to lose sight of the goal and that is to make money. Presumably, the plan was designed to do that.
“Growers need to spend time looking at numbers,” says Austin. “It takes time initially but it helps them to be profitable and to know what their costs are.” He adds there are many programs available to guide growers through the development of a marketing plan, from seminars offered by extension services to courses taught at colleges or through private companies.
“A marketing plan is not a static document,” continues Whewell. “It’s really a working paper that helps to reduce stress.” He says once a plan is in place, growers can take a look at it over the course of the season and make adjustments if needed.
All growers should take an active role in marketing their crop, adds Austin. “It’s a budget that helps growers understand whether it is feasible to store their crop or sell it.”
Sadly, the market volatility may scare some growers away from developing marketing plans, says Vanderloo, but that is when having a plan is most important. He says when markets did not fluctuate much, growers could get by without a marketing plan, but that’s no longer the case. Despite the strong prices for some commodities, Vanderloo says it is important to balance them against the cost of production.
A marketing plan helps with the decision-making and can spread out the risk. Just because commodity prices are high doesn’t mean growers will be making large amounts of money. If they haven’t considered that costs have also risen, the numbers on the bottom line may not have increased. But, without a marketing plan, even in the good times, how would a grower know?
“A marketing plan is a road map to satisfaction,” comments Whewell. “Everyone has a level at which they are satisfied. The goal is to make the most profit every day and a marketing plan can keep you on track to do that.”
May 3, 2012 By Rosalie I. Tennison