Executive Marketing:
Developing a Marketing Plan
Scott A. Mickey
2005 RME - Executive Marketing
1
Seminar Purpose

Develop a written marketing plan based
on producer’s financial needs



Operating costs
Cash flow requirements
Planting intentions
2005 RME - Executive Marketing
2
Seminar Topics & Tools







How Healthy is your Business
Fundamental Analysis
Comparing Crop Insurance Products
Marketing Simulation Game
Target Price Analysis
Putting the Plan on Paper
Quarterly Updates
2005 RME - Executive Marketing
3
How Healthy is Your Business


Assess the financial condition of the
business
Recent Balance Sheet
2005 RME - Executive Marketing
4
Assessing Financial Position
How much RISK can you bear in 2005?
Go
Caution
Stop
A.
Debt to Asset ratio
Total Liabilities
Total Assets
< 30%
<60%
>60%
B.
Current ratio
Current Assets
Current Liabilities
>1.50
>1.0
<1.0
C.
Working Capital
Current Assets
- Current Liabilities
?
?
?
D.
Working Capital
Revenue
Working Capital
Gross Revenue
> 25% of
> 15% of
< 15% of
revenue
revenue
revenue
Asset Turnover ratio
Gross Revenue
Total Assets
>.60%
>.25%
<.25%
E.
2005 RME - Executive Marketing
5
Assessing Financial Position
1.
2.
3.
What is the ratio telling us?
How has it changed from last year?
Will it impact marketing decisions?
2005 RME - Executive Marketing
6
Fundamental Analysis


Where prices may go
When
2005 RME - Executive Marketing
7
Fundamental Analysis
1.
2.
3.
4.
5.
6.
Project Ending Stocks
Estimate US average cash price
Add average US basis to cash price
Determines expected Futures price
Adjust to HARVEST futures price
Evaluate years with similar ending
stocks
2005 RME - Executive Marketing
8
Corn Stocks and Price
$3.50
95/96
$3.00
96/97
$2.75
93/94
$2.50
03/04
97/98
89/90
91/92
02/03
90/91
94/95
$2.25
92/93
01/02
98/99
04/05
00/01
99/00
1,5
1,6
U.S. Season Cash Price ($/bu)
$3.25
$2.00
$1.75
$1.50
2,2
2,1
2,0
1,9
1,8
1,7
1,4
1,3
1,2
1,1
1,0
50
50
50
50
50
50
50
50
50
50
50
50
50
0
95
0
85
0
75
0
65
0
55
0
45
0
35
0
25
Ending Stocks (mil bu)
2005 RME - Executive Marketing
9
Fundamental Analysis:
Projecting Pricing Opportunities
Projected ES
Expected US cash price
+ Average basis
= Expected Dec Futures
+ Adjust to HARVEST futures
= Expected HARVEST futures
Corn
1753
$2.00
$0.20
$2.20
-0.10
$2.10
2005 RME - Executive Marketing
10
Fundamental Analysis:
Projecting Pricing Opportunities
Evaluate Similar Years
Beginning Stocks
1999
1787
2004
958
Ending Stocks
High Price
Month
Low Price
Month
1797
250
Mar
184
Dec
2010
342
Apr
193
Dec
2005 RME - Executive Marketing
11
Crop Insurance

Understand available products



Production guarantees
Revenue guarantees
Use CRC for Market Trades
2005 RME - Executive Marketing
12
2000 – 2004 MPCI Analysis
1
2
3
4
5
6
7
8
9
10
11
APH
Coverage Level
Bushel Guarantee
MPCI Price Election
Actual Yield
Production Loss
MPCI Claim
MPCI Premium
MPCI Return
Acres
Farm Total
1x2
4-5
3*6
7-8
9 * 10
2000
2001
2002
2003
2004
Average
100
75%
75
$1.90
68
7
$13.30
($15.38)
($2.08)
1,000
-$2,080
100
75%
75
$2.05
136
0
$0.00
($15.38)
($15.38)
1,000
-$15,380
100
75%
75
$2.00
44
31
$62.00
($15.38)
$46.62
1,000
$46,620
100
75%
75
$2.20
127
0
$0.00
($15.38)
($15.38)
1,000
-$15,380
100
75%
75
$2.45
123
0
$0.00
($15.38)
($15.38)
1,000
-$15,380
100
75%
75
$2.12
99.6
7.6
$15.06
($15.38)
($0.32)
1,000
-$320
2005 RME - Executive Marketing
13
2000 – 2004 CRC Analysis
1
2
3
4
5
6
7
8
9
10
11
12
13
14
APH
Coverage Level
CRC Base Price
CRC Min Guarantee
CRC Max Guarantee
CRC Harvest Price
Final Guarantee
Actual Yield
Revenue To Count
CRC Claim
CRC Premium
CRC Return
Acres
Farm Total
1*2*3
1*2*(3+$1.50)
6*8
7-9
10 - 11
12 * 13
2000
2001
2002
2003
2004
Average
100
75%
$2.22
$167
$279
$1.78
$167
68
$121
$45
($21.15)
$24.31
1,000
$24,310
100
75%
$2.44
$183
$296
$2.17
$183
136
$295
$0
($21.15)
($21.15)
1,000
-$21,150
100
75%
$2.29
$172
$284
$2.59
$194
44
$114
$80
($21.15)
$59.14
1,000
$59,140
100
75%
$2.42
$182
$294
$2.20
$182
127
$279
$0
($21.15)
($21.15)
1,000
-$21,150
100
75%
$2.53
$190
$302
$2.25
$190
123
$277
$0
($21.15)
($21.15)
1,000
-$21,150
100
75%
2005 RME - Executive Marketing
99.6
217.254
$25.15
($21.15)
$4.00
1,000
$4,000
14
Crop Insurance 


Comments
Is CRC a better way to go?
What about the price in between the
base period and harvest period?
2005 RME - Executive Marketing
15
CouldaSeptember 2004 Price Trends
$350
$325
$300
$275
$250
$225
$200
1/
1
2/
1
3/
1
CBOT
4/
1
5/
1
CRC Harvest
6/
1
7/
1
8/
1
MPCI Price
2005 RME - Executive Marketing
9/
1
16
Marketing Simulation Game

Dr. Art Barnaby’s corn trading game




S/D reports
Futures / Options / Cash
Crop Insurance
Review of price enhancement strategies
2005 RME - Executive Marketing
17
Target Price Analysis

Discover “successful” prices




Target = OP + Extra
B/E = OP
Cash Flow = OP - WC
Use producer’s actual crop budgets
2005 RME - Executive Marketing
18
Setting Commodity Target Prices
Step 1--Determine operating profit requirements
+
+
=
+
=
Interest
Family living & taxes
Principal payments
MINIMUM OPERATING PROFIT
Allowance for new assets & uncertainty
OPERATING PROFIT GOAL
2005 RME - Executive Marketing
19
FLOID
Family Living & taxes
Operating expenses
Interest
Debt (principal)
2005 RME - Executive Marketing
20
Calculate Operating Profit
Dec-05
Per Acre
Family Living
$65,000
$33
+
Interest
28,500
14
+
Debt (Principal)
58,500
29
=
Min Op Profit
$152,000
$76
+
New Assets
50,667
25
202,667
$101
=
Op Profit Target
2,000 crop acres
2005 RME - Executive Marketing
21
Setting Commodity Target Prices
Step 2--Calculate TARGET prices.
* Covers FLOID + Uncertainty
+
=
=
/
=
Operating Cost
Operating Profit Goal
Calculated Gross Revenue
Non-Crop Revenue
Crop Revenue Required
Expected Yield
TARGET PRICE
2005 RME - Executive Marketing
22
Calculate Target Price
Corn
Cotton
Operating Cost
$222
$399
+
Op Profit Target
101
101
=
Calculated Gross
$323
$500
-
Non Crop Revenue
-19
-19
=
Crop Revenue Required
$305
$482
/
Expected Yield
98 bu
750 #
=
Target Price
$3.11
$0.64
2005 RME - Executive Marketing
23
Putting the Plan on Paper

When
How
What

Quarterly Updates


2005 RME - Executive Marketing
24
Executive Marketing: Update
Acreage Report 6/30/04















General Comments
These comments apply to the July/August time period.
The FLOID price covers Family Living, Operating expenses, Interest and Debt. The FLOID price results in
no change in net worth.
The “Duck” price covers all of “FLOID” plus a 25% cushion. A Duck price increases net worth.
Assess your “FLOID + Duck” price relative to market. If you can achieve this price level, use futures or
cash forward contracts.
Assess your “FLOID” or breakeven price relative to market. Try to achieve this price level using put
options. This will protect family living and debt service needs while leaving the upside open.
Corn – CZ04
Comments:
Dec 04 & 05 are both in top 1/3 of historical prices.
Historical high yields needed on increased acres to maintain current Ending Stocks.
A decrease in yield could be explosive.
Chart gaps DOWNSIDE @ 2.58, UPSIDE @ 2.72, 3.05
Actions:
If no crop is priced, get to 50% priced now.
Price in September or December based on your storage situation and risk tolerance.
2005 RME - Executive Marketing
25
Hope is much more than a mood. It involves a
commitment to action…What we hope for should
be what we are prepared to work for and so
bring about, as far as the power lies in us.
John Polkinghorne, physicist, Anglican priest
and author of The God of Hope and the End of
the World
Thank You!
Scott Mickey
smickey@clemson.edu
PO Box 237
Sumter, SC 29151
803 775-4580
800 881-7518 fax
2005 RME - Executive Marketing
27