My personal goal is to sell our product in the top 20 per cent of the market price for that year. I set this goal through the help of a professor of mine while I was still at the University of Saskatchewan. If you can get your product sold in this type of percentage position, it will create a very profitable situation. Of course, who doesn’t have this goal? The difference between setting a goal and achieving it comes down to three basic steps.
Step 1: Be informed
The most important part of any marketing decision is the background information you use to make that decision. With the tools at your disposal these days, information is much easier to access now than in days past.
The best way to keep up with the news of the day is to subscribe to one or more of the many agriculturally based newsletters that are emailed daily. Larry Weber of Weber Commodities, for example, has a daily newsletter that gives vital information on market quotes as well as Canadian and world agricultural happenings that can affect prices in the future. If there is a major drought continuing in Australia or export policy changes in Argentina, you are going to find out about it in one of these daily newsletters.
This type of information can help you understand market fundamentals, which usually (but not always, as we’ve learned in the past year) tell us where prices are heading. It also alerts you to political reforms and policy changes that can affect the way our export competitors or key importers do business.
Step 2: Know your costs
You’ve heard this before, and it’s true: Knowing your operational costs will make you a much better marketer. There are many tools out there that allow you to organize and view costs in a clear and concise matter. Excel or any other spreadsheet computer program can help you do basic cost analysis quickly and easily.
I use Excel because I can change spreadsheet files very easily as things progress, and Excel will do the math for me so I don’t have to sit with a calculator and add up all the costs. And if I change one number, that change can be reflected throughout the entire sheet. Another small advantage with Excel is that you can trace formulas and see exactly what numbers you used to get the total. This way at the end of the year you can check to make sure everything is in order. Excel also allows you to print out neat looking documents that are always easy to read and understand.
Of course, you can also do cost analysis with specialty programs built for farm accounting, but sometimes it is much easier to use a form that you are familiar with because you created it (and understand how it works and the formulas used.) How you record and add up your costs is not nearly as important as the time spent to accurately calculate your input costs and your fixed costs per bushel.
Most farmers know the general costs of growing a certain crop. This usually includes cost of seed, fertilizer, chemical, and maybe some trucking fees or the like. However we all know that there are many more costs involved to produce an acre of crop. Fuel and machinery costs need to be included as well as family living costs and labour costs. Everything costs something and needs to be accounted for as best as possible before proper marketing decisions can be made. The more exact this number, the more of a precise bottom line you can set as your break-even point. This just makes marketing easier because with all the costs accounted for, you are less likely to encounter an unexpected cost that takes the profit out of your marketing plan.
Step 3: Act accordingly
Sure, it’s easy to market when prices are so high that a profit is guaranteed. But even at high prices, it can be difficult to turn a plan into action — a “sale.” Once you have a market outlook gathered and the costs assessed, you need to use this information to make the best marketing decisions possible.
This information will help you make rational decisions about prices. When the markets are on the rise, farmers remain hopeful that they will continue to rise, even though the current price is already higher than market fundamentals will bear. The farmer then tries to hold on to the product past this point, even though this point is already profitable (sometimes highly profitable.) Then the market goes down, and the farmer waits for a market rebound — even though in some cases there is no information to show this rebound will occur. Usually this type of scenario ends in the farmer selling the product much more closely to or even below the break-even cost.
One strategy to avoid this is to sell your crop bit by bit. If you think the price may still go up some more, then hang on to a smaller proportion — such as 15 per cent of production — for marketing at a later date.
The key is trying not to get stuck selling most of your crop when prices are on the way down. If peas are $10 dollars a bushel and all the production is in the bin, and suddenly they drop to $9, one cannot be afraid to let them go. Especially if market indicators show production was greater than expected and demand has not risen. Because instead of going back up to $10, next thing peas will be down to $8 and then $7. If the cost of production was $6, the farm’s straight profit is slowly slipping away.
Selling in that top 20 per cent area is much easier said than done. But by using these three steps, you can make the best marketing decisions available with the information given.
Jay Peterson farms near Frontier, Sask. He graduated from University of Saskatchewan in 2008 with a Bachelor of Science in Agribusiness.