Farmers are masters of coaxing extra bushels out of every acre they have, and most would like to do the same with coaxing extra dollars and cents out of that production. The fact remains that marketing is part knowledge, part startegy and part luck. Unfortunately, it seems many rely too heavily on the luck aspect and often forget about the work they’ve done on the other components like successful marketing. All farmers aim to price in the top third of the market — an admirable goal — but that’s not terribly realistic.
Instead,Grainewsasked three market-savvy experts to offer their tips on how to stack the profit deck in your favour.
HAVE A CASH FLOW-FRIENDLY PLAN
Charlie Pearson, provincial crops market analyst with Alberta Agriculture, knows farmers hear it all the time, but you must start with a marketing plan. More than that, it has to revolve first around the cash flow needs of the farm. You have to lay out all variable and fixed costs, including mortgage payments, short-term debt and cash advance repayments and ensure that you’re selling enough at in enough time to make these payments. “Where some get hung up,” Pearson says, “is by not working with prices at the bin. Make double sure the numbers you’re working with are ‘in the yard’ so you don’t get surprised by deductions and fees.”
Derek Squair, president of Agri- Trend Marketing, agrees that all farms, regardless of size, need a marketing plan that is cash flow based. Squair goes one step further and adds that farmers need to be diligent at including all costs in their variable and fixed costs. Any and all money that flows out of the farm must be accounted for in the break-even and profit analysis, he says. “That means that trip to the farm show or hay for the wife’s horse in the back pasture has to be accounted for if it’s funded by the farm’s income,” Squair says.
Squair sees all too often that farmers neglect to pay themselves, even though they’re drawing against the farm to cover living expenses. “If you want to lump all the costs (of daily life and recreation) together and call that your wage or management fee, go ahead, but you have to pay yourself something for your time,” he says.
KNOW WHAT YOU HAVE
In any year, but especially in a challenging year like this one, it pays to have representative samples of the crop on hand and to know what you have. A Canadian Grain Commission sample is a good place to start; third-party-graded samples allow you to shop your crop around to interested parties. If you don’t have the quality one company or type of industry is looking for, don’t waste your time — find the buyer who is interested in the quality you have.
Pearson says there are two common hiccups that happen at this stage of the game. “Most farmers are diligent about sampling every load as it comes in and keeping that five-gallon pail around as a representative sample of what’s in the bin, but there are those who don’t,” he says. Samples must be representative of the volume of crop you’re shopping around in order for the sample to be useful.
Also, Pearson says that while basic grading will give you some information, additional testing of, say, wheat for falling number or milling-quality characteristics may be well worth the money this year if overall crop quality is poor (which seems to be the case). The extra cost could prove paid for many times over if you can walk in to see a buyer and speak their language, knowing you have the quality they need, Pearson says.
LEARN AND USE MARKETING TOOLS
Squair says that while every farmer should use marketing tools within their risk tolerance comfort zone, he challenges farmers to learn to use the tools that are out there. “We’ve had grain exchanges for 120 years, and yet many farmers still don’t use them to manage risk,” he says. Forward contracts and hedging strategies are used all the time by grain traders to make money; farmers can absolutely do the same, he says.
The key is learning how and when to use marketing tools and developing a certain level of comfort so these tools are helpful instead of stressful. “It’s not gambling; it’s risk management,” Squair says.
Many farmers are comfortable with forward contracting part or much of their production, and that’s also a great place to start. Depending on your comfort level, you may contract most acres but at a very reasonable maximum of bushels per acre. When contracting, it’s important to fully understand what clauses protect you (and the buyer) and what your liabilities may be if production fails to impress or if acres are swapped out in a prolonged seeding season. Again, a full understanding of how a marketing tool works offers leverage. Take the time it takes to fully understand what you’re signing, but don’t be afraid to lock in profits ahead of the growing season when the opportunity presents itself.
USE GOOD INFORMATION; BE REALISTIC
Deciding when to pull the trigger and price a portion of the crop will likely turn out best if you’ve got a fully informed decision as to what prices are going to do.
Of course, farmers are the ones who have to decide when to sell, but there is no shortage of people offering up their opinions on when to sell and for how much. Wading through the multitude of newsletters, market updates and market commentary offered in one day could be a full-time job if you let it be.
Mike Jubinville, president of ProFarmer Canada, says that we’re likely in for yet another very volatile marketing year. “When there are tremendous swings in the market that (can add or take away) huge money to the bottom line,” he says. Being informed as to what’s happening and is likely to happen can better set you up to capitalize on volatility. Still, where do you draw the line on being informed versus information overload?
“It used to be that we relied on the noon radio or television update (for market updates),” Jubinville says, now you can have up-to-the-minute updates sent to your phone all day long. “The challenge is to find a source of usable information that’s been distilled down from much wider sources.” Jubinville, whose company offers a daily market update, says that it’s also possible to do your own market analysis but the sheer volume of information sources out there can bog you down in no time.
Jubinville adds that an overload of information and commentary on where the market is going can also lead to some becoming overly bullish, especially in the face of expected volatility. “You’ve got to be realistic in pricing,” he says. Selling at a nice profit is nothing to be ashamed of, even if the market ticks higher for a few days or weeks following. “We only see the top of the market after it’s passed,” he says. And then, too often, those who waited too long find themselves selling into a falling market. “Markets tend to fall faster than they climb,” he says. Remember that.
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