Developing and Refining your
Marketing Plan
How does an effective marketing plan relate to the
market outlook…
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
lschulz@iastate.edu
515-294-3356
Chad Hart
Associate Professor
chart@iastate.edu
515-294-9911
Types of Risk
Profit
Price
Financial
Business
Production
etc…
In your farm management, how would
YOU describe your risk taking behavior?
A. A risk avoider
B. Cautious
C. Willing to take risks after adequate research
D. A real gambler
In your farm management, how would YOUR
NEIGHBORS describe your risk taking
behavior?
A. A risk avoider
B. Cautious
C. Willing to take risks after adequate research
D. A real gambler
Which factors below do you consider
your comparative advantages?
A. Analysis and use of new technology
B. Business planning skills (transition planning, business structure,
alliances, etc.)
C. High quality livestock (genetics, etc.)
D. High quality land (crops, pasture, etc.)
E. Loan and interest rate management
F. Low cost
G. Facility and machinery management
H. Marketing skills
I. Personnel management
J. Production skills
How do you manage farm income
volatility?
A. Purchase insurance (LRP, LGM)
B. Off-farm income
C. Saving funds in good years
D. Selling more culls during hard times and retaining more at
other times
E. Utilizing futures and/or options
F. Utilizing contracting (marketing, production, etc.)
Why Should I have a Marketing
Plan?
• Detached from the decision
• Proper perspective
• Introduces discipline and consistency
• Check your logic
• What if…
What is a Marketing Plan?
A marketing plan is an outline of price,
date, and quantity objectives used to
generate a reasonable return given the
existing market conditions.
8-Step Marketing Plan
1. Describe your current operation
2. Specify goals
3. Know your costs of production and break-even
4. Utilize sound market information
5. Set target prices
6. Evaluate pricing alternatives and actions
− Cash, futures/options, forward contract
7. Execute when target prices are hit
8. Review and evaluate results
1.Describe your current
operation…
•
•
•
•
•
•
Annual marketing's: number, weight, timing of sales
Input purchases: feeder pigs, feed needs
Quality of hogs: genetics, leanness, weight distribution
Cost of production: cash and total costs
Alternative market outlets: distance, transportation costs
Marketing philosophy: sell on tight schedule, shop for best
price, standing order
• Attitude toward price risk and knowledge of risk
management tools
• Where are you going?
2.Specify goals…
•
•
•
•
Manage risk and protect profit potential
Goals should be achievable and measurable
If and when consistently met – revise upward
Examples:
− Selling price 10% higher than the state average
for the year
− Sell in top 1/3 of state price range for the year
− Cover total costs plus growth requirements
− Cover cash requirements
3.Know your costs of
production and break-even…
• Production history and expectations
• Incorporate input quantities and prices
• Project costs on per unit sold
− Variable $/unit
− Total $/unit
• Budgeting tools available
− http://www.extension.iastate.edu/agdm/livestock/
html/b1-21.html
3.Know your costs of
production and break-even…
• Project a break-even level
− Price to cover variable costs
− Price to cover fixed costs
− Price to cover profit and growth
• Sensitivity analysis for key variables
• Back calculate from revenue to what you can afford
to pay for feeder pigs
4.Utilize sound market
information…
• Factors that impact price
− Supply
− Demand
− Demand and supply balance
• Systematic price variations
− Trends
− Cyclical movements (cattle cycle, hog cycle, etc)
− Seasonal price patterns
4.Utilize sound market
information…
• Market information and projections
− USDA reports (weekly, monthly, annual)
− Extension forecast/outlook reports
− Commodity organizations
− Newsletters
− Private marketing firms
5.Set target prices…
• Set target prices based on actual or accurately
estimated production costs
• Know what the market is paying (or expected to pay)
• The level and timing of target prices based on:
− Market outlook information
− Cost of production figures
− Cash flow needs
• Advantageous to set several target prices
− Allows for changing market trends
Date
Commodity Description
Number of animals
Placement date
Placement weight
Expected sell date
Expected sell weight
1200
March 25
45
August 1
270
Cost
Price of the pig
Feed
Interest on feeder pig and feed
Veterinary and Supplies
Transportation and marketing costs
Direct facility
Labor
Facility and Overhead
Price Target
1
2
3
4
5
6
7
Future contract
Current quotation
Expected basis
Expected price
Cost head/sold
81.09
74.27
2.46
1.80
5.28
5.86
2.31
4.27
Cost cwt/sold
30.03
27.51
0.91
0.67
1.95
2.17
0.85
1.58
Live Hog
63.24
64.10
64.89
65.68
68.68
71.68
74.68
Lean Hog Equivalent
87.95
89.11
90.18
91.25
95.31
99.37
103.44
March 25
AUG-LH
102.00
-1.73
100.27
Accumulated Cost
30.03
57.54
58.45
59.12
61.07
63.24
64.10
65.68
6.Evaluate pricing alternatives
and actions…
Method
Advantages
Disadvantages
Cash sales
• Easy to transact
• Immediate payment
• No set quantity
• Minimize risk
• No price protection
• Less flexible
Forward contract
•
•
•
•
• Must deliver in full
• Opportunity loss if prices rise
Futures contract
• Easy to enter/exit
• Minimize risk
• Often better prices than forward
contracts
•
•
•
•
Options contract
•
•
•
•
• Premium cost
• Set quantities
• Commission cost
Easy to understand
Flexible quantity
Locked-in price
Minimize risk
Price protection
Minimize risk
Benefit if prices rise
Easy to enter/exit
Opportunity loss if prices rise
Commission cost
Performance bond calls
Set quantities
6.Evaluate pricing alternatives
and actions…
• Current positions
− Too short, too long?
− Average price sold – will it get you close to the
target or are you in danger of falling below the
minimum?
• Market activity
− Trends
− Support and resistance
− Fundamental, seasonal, and technical picture
6.Evaluate pricing alternatives
and actions…
Example
• If the market outlook is bearish…
− Sell futures on 50% of production
• If the market outlook is neutral…
− Buy put option to set a net floor price
• If the market outlook is bullish…
− Stay in the cash market
Price Lean Hog
Target Equivalent
1
87.95
2
89.11
3
90.18
4
91.25
5
95.31
6
99.37
7
103.44
March – USDA’s quarterly Hogs and Pigs report estimates were modestly higher than
one year ago and, for the most part, slightly higher than analysts’ pre-report estimates.
The report may be slightly bearish for nearby CME Lean Hog futures. Lower-thanexpected farrowing and farrowing intentions numbers may be slightly bullish for deferred
contracts (CME Daily Livestock Report).
June – USDA’s quarterly Hogs and Pigs report from USDA was very much as the
market expected and will most likely be viewed as neutral in the markets (CME Daily
Livestock Report).
7.Execute when target prices
are hit…
August Lean Hogs
110
105
Price Lean Hog
Target Equivalent
1
87.95
2
89.11
3
90.18
4
91.25
5
95.31
6
99.37
7
103.44
100
95
90
85
80
3-Jan
3-Feb
3-Mar
3-Apr
3-May
3-Jun
3-Jul
3-Aug
8.Review and evaluate
results…
• Check performance relative to marketing goals
• Biggest reason for failure to repeatedly use
marketing plans is that performance is compared to
what might have been
− Typically the highest price alternative
− Probably an unrealistic goal
• No one strategy is best all the time
• Are conditions changing?
What Makes a Marketing Plan
Work?
• Know your market positions
− Track all positions – where do you stand on %
sold and average price?
• Make the plan manageable
− Don’t expect to achieve your highest targets
− Focus on only tools you feel comfortable using
− Set price targets that are realistic
− Use multiple sources of analysis
A Little Marketing Philosophy
• Bad outcomes still happen…
• Never compare to the market high…
• Your plan for your operation…
Class web site:
http://www.econ.iastate.edu/~chart/Classes/ec
on337/Spring2015/