MARKETING: PLANNING
FOR PROFIT
Agriculture is becoming more market
driven and less production driven
1
SELLING VS MARKETING
• Selling - the physical act of moving goods
off the farm/ranch to the buyer
• Marketing - involves producing what is
demanded and pricing that production in
terms advantageous to the producer
• Market defined: whenever buyers and
sellers are able to agree on terms under
what the sale or trade of products and
services can be completed
2
HISTORY OF THE FOOD
CHAIN
• 100 years ago people canned, dried
slaughtered and milled their own products
• Producers helped each other and shared
equipment, labor and even a cup of sugar
• Specialization and decentralization took over
• Now we may have to centralize our system to be
competitive - cooperative effort in local
community is a must
3
TYPICAL STEPS IN
MARKETING A BEEF CALF
•
•
•
•
•
•
Rancher sells to backgrounder
Backgrounder sells to feedlot
Feedlot sells to packer
Packer may sell to wholesaler or retailer
Wholesaler sells to the food stores
Retail store sells to consumer
4
UTILITY: adds usefulness
• Form Utility - slaughter, slice, dice, chill,
freeze, dehydrate, pickle, can, grade, and
prepare foods (to name a few)
• Time Utility - transportation
• Place Utility - storage Ex. - C A storage
5
DIFFERENTIATED
PRODUCTS
• Branded products - Sterling Beef, Certified
Angus, Heinz, Generic
• Organic and or Natural
• Prepared Foods:
- Fully or partially baked or cooked
- Uncooked but marinated, seasoned and
packaged with vegetables and cooking
directions
6
CASH
MARKETING
7
CASH MARKETS
Grain and Hay
• Sell at harvest to: feedlot, dairy, elevator or
another producer
• Store and sell at a future date
• Forward price: sell at harvest or sell at a
future date
• Commodity could be delivered at harvest
for pricing and payment at a later date
8
CASH MARKETS
Livestock
• Sell at auction barn
• Sell direct to feedlot/backgrounder
• Sell via video to feedlot /backgrounder
• Sell direct to the consumer
9
CASH MARKET
Fruit, Honey, Vegetables etc.
•
•
•
•
•
•
Roadside stand
You pick (except honey)
Packing shed/processor
Retail store
Community Supported Agriculture (CSA)
House to house
10
OTHER CASH MARKETS
• Internet sales
• Direct mail
• Catalog
• Telephone
• T.V. shopping channels
* Direct sales are the fastest growth sector in
production agriculture marketing's
11
FUTURES
AND
OPTIONS
CME
CBOT
12
HEDGING WITH FUTURES
• Hedge a sale or purchase using futures
contracts
• Establishes a price (assuming basis remains
constant)
• Requires a margin (performance bond)
deposit
• If you sell, you are short the market
• If you buy, you are long the market
13
HEDGING WITH OPTIONS
• Provides price protection like the futures
but lets you benefit from and up market if
selling or a down market if buying
• Put - the right to sell an underlying futures
• Call - the right to buy an underlying
futures
• Premium is paid for the above rights
14
OTHER OPTION
STRATEGIES
• Sell puts or calls - used when you want to
re-own your commodity and you expect the
prices to track sideways
• Fifteen other option strategies such as
strangles, straddles, butterflies, spreads etc.
15
OTHER MARKETING OPTIONS
• Cooperatives are designed so you buy
inputs at or near cost and sell commodities
at higher prices (any profits are returned
as patronage dividends)
• Closed Cooperatives have limited
participants which give the members more
control and permit quicker changes
16
MARKETING GRAIN AND HAY
near market price highs
• Research the market
- keep current on marketing alternatives
- know potential yields and acres
- what is the projected demand and usage
- know seasonal highs and lows
- know exports and imports
- watch influence of weather
- keep abreast of government programs
Reports
17
MARKETING LIVESTOCK
near price highs
• Know seasonal patterns - cattle prices often
highest in late spring and summer
• Back ground feeders for several months
• Retain ownership - put feeders into a feedlot
• Use USDA production reports
• Make decisions based on as many factors as
possible
18
MARKET INFORMATION
• Newspaper, radio and T.V.
• Internet for USDA reports and delayed
futures and options quotes
• Cash auction barn prices
19
PLANNING FOR PROFITS
• Develop new niche markets
• Partial or complete processing, transporting
or storing
• Build customer loyalty
• Utilize university marketing programs
• Setup incubator programs - commercial
kitchen
20
continued
• Make a market plan or use an advisory
service
• Make market decisions - strike a balance
between risks and potential price gains.
Risk varies by producer
• Don’t get caught having to sell during the
“John Deere/New Holland” bounce!!!
21
PREM IUMS PAID FOR NICHE
CORN PRODUCTS IN IOWA
•
•
•
•
•
•
Food grade - 7 to 12 cents
High oil - 5 to 6 cents
High starch - 7 to 12 cents
Waxy - 10 to 12 cents
White - 20 to 47 cents
Non-GMO - 3 to 12 cents
22
CONSUMER AS KING OF
THE FOOD SYSTEM
• Right or wrong, sciences savvy or not
consumers dictate what farmers raise
• In the past manufacturers ended up with
product that had to be sold on promotions
• Now manufacturers know immediately
what consumers are purchasing. The bar
code at the counter gives manufacturers
instant information and they adjust
production accordingly
23
continued
• Farmers and ranchers need to establish
relationships with manufacturers and adjust
or change production accordingly. Many
producers will grow commodities under
contract. We should GROW what the
consumer buys.
• Producers need to know buying habits of
the consumer - ethnic foods, geriatric
peoples needs, single servings etc.
24
continued
• Later in 2000 the Universal Code Council
(UCC) will launch a net site called
“UCC.net” The UCC manages the black
and white bar code. This net address will
provide agricultural producers with
information on new products, promotional
opportunities and an avenue to buy and sell
products electronically
25
CONSUMERS COMMENTS
ABOUT FOOD PRODUCTS
•
•
•
•
•
•
•
I want less fat
I want lots of choices
It must be fresh
I’m bored, give me something new
I am too busy to cook
I want to shop on-line
I want organic and or natural foods
26
CONSUMERS SURVEY - 1998
•
•
•
•
•
•
•
Purchased food free of pesticides
19.5%
Purchased natural food
35.7%
Purchased organic food
23.0%
Refused to buy food thought unsafe 33.1%
Shopped at health/natural food store 18.5%
Refused substandard quality food
53.1%
None of the above
26.5%
27
ORGANIC FOODS
• Demand increasing domestically & abroad
• New standards announced March 2000
• Organic Farming - is it for me?
28
ORGANIC STANDARDS
• Standards added week of March 1, 2000
-no irradiation
- no sewage sludge
- no genetically modified products
- limited additives
- regulate use of synthetic chemicals and
fertilizers
29
ORGANIC CROPS by Acre
–
–
–
–
–
–
–
–
–
Idaho 107,955
California 96,851
North Dakota - 88,581
Montana 59,362
Minnesota 56,275
Wisconsin 41,245
Colorado 35,127
Iowa 34, 276
Florida 32,104
– Nebraska -
28,104
April 2000
30
COMMUNITY SUPPORTED
AGRICULTURE
• Members buy shares in early spring to meet
the farmer’s operating expenses
• Producer distributes produce to members
during the growing season
• If crop failure, all share in the loss
• In some cases the consumer may barter for
produce in change for his labor
• Often natural or organic - definitely locally
31
grown
CSA
ALTERNATIVE MARKETING
IDEAS
• Direct marketing of
meat - beef, deer, elk
• Self cut Christmas tree
• Farmer’s market
• Goat milk & meat
• Green house tomatoes
• Mushrooms
• On-farm bakery
•
•
•
•
Wild flowers
Gourmet foods
Fee hunting
Bread and breakfast
• Dairy products
- whole milk
- cream
- ice cream
- cheese curds
- seasonal - egg nog
32
continued
• Ethnic cuisine
• Senior foods - functional and healthy
• Ethanol - MTBE to be outlawed in
Colorado
• Produce and grocery delivery
• Alfalfa pellets for livestock
• Hogs raised on pasture
• Agricultural tourism
33
SUMMARY
Maybe we don’t have to be part of the
66% who market their commodities
in the lower third of the price range!!!
34