Which Marketing Strategy
Should I Use and Why?
John Hobert
Farm Business Management Program
Riverland Community College
What is the normal selling
curve for farmers today?
 8-12%
of farmers sell their produce in the
GREED stage.
 5-7% of farmers sell their produce in the
HOPE stage.
 12-24% of farmers sell their produce in the
FEAR stage.
 57-75% of farmers sell their produce in the
PANIC stage.
Normal Selling Stats for Corn
and Soybeans by Producers
 Better
than 60% of all corn and
soybeans are sold in the lower 1/3 of the
market.
 Less than 10% of all corn and soybeans
are sold in the top 1/3 of the market.
 Utilizing the simplest of marketing
plans should improve your chances in
the marketing of farm products.
What are Some of the
Marketing Tools available?
 The
Cash Market
 The Forward Contract
 Hedging
 Delayed Pricing
 Government Programs
 Options
 Animal Feeding
More Marketing Tools.
 Sell
Cash-Buy Futures
 Alcohol Plant Agreements
 Speculating........
 Others?
Advantages of the Cash
Market in General
 It
is widely used and well understood.
 You can sell most anytime.
 No cash is involved other than
transportation.
 The price is known immediately.
 Others?
Disadvantages of the Cash
Market in General
 You
lose flexibility.
 All sales are irreversible.
 Cash prices are tied to local conditons.
 Others?
Advantages of the Forward
Contract in General
 You
lock in a price for future delivery at a
certain location.
 The most widely used and understood of
forward pricing alternatives.
 It is simple and legally binding.
 It usually can be made in any amounts.
 There are no margin calls.
 It eliminates second guessing.
Disadvantages of the Forward
Contract in General
 You
have yourself locked in and have
thrown away the key.
 You have no advantage from a narrow
basis.
 Others?
Advantages of Hedging in
General
 You
increase your market flexibility.
 You extend your marketing season.
 You capture basis gains without
speculating on basis.
 Others?
Disadvantages of Hedging in
General
 It
requires learning a new marketing
skill.
 You require margin money to maintain
your account.
 You need a specific amount for a given
contract.
 You require self discipline to avoid
speculating in the Futures.
Advantages of Delayed
Pricing in General
 It
eliminates pricing at harvest.
 You can establish your price at a later
date.
 It eliminates on farm storage.
 Up to 70% of the value of the
commodity may be received at the time
of delivery.
Disadvantages of Delayed
Pricing in General
 You
lose title to the crop upon delivery.
 You become a common creditor, not
covered by state or federal regulations.
 In case an elevator declares bankruptcy,
you will be at the back of the line to get
your money. Some have lost money in
this manner.
More Disadvantages of
Delayed Pricing in General
 You
could end up with a high service
charge which could be greater than the
cost to carry in a delayed pricing
contract.
 You could end up with a Basis Fixed
Contract with a basis set too wide.
 Problems have occurred in recent years
with this marketing method.
Advantages of Government
Programs in General
 They
provide you with a valuable cash
flow tool when you need it.
 You maintain ownership of your
commodity.
 Receiving your loan is quite immediate.
 The interest rate on CCC loans are low
as compared to most ag-lenders.
Disadvantages of Government
Programs in General
 You
must consider your return after
storage, interest, shrink, opportunity
cost, and possible risk factors such as
spoilage.
 You need to keep up-to-date on market
changes after implementing your CCC
loan to make the best decision as to
when you will reverse your loan.
Advantages of Options in
General
 Your
risk is limited to the cost you have
to pay for the premium on your option.
 You have unlimited profit potential.
 You maintain flexibility.
 No margin money is required with
options.
 Look at it as commodity insurance.
Disadvantages of Options in
General
 Options
requires learning a new
marketing skill.......puts, calls, etc.
 Options premium costs may take away
all profit potential.
 Because options are tied to futures,
basis risk still exists.
 Selecting the most profitable premium
is a problem with options.
Developing a Personal
Marketing Plan is the key!
 So.....what
will we attempting to
accomplish monthly through this
marketing group?
 An Educational Delivery each month on a
specific marketing topic by Riverland
Community College FBM Staff.
 A Marketing Update monthly by Staff
from Ag-Partners Cooperative.
 Group Discussion on marketing concepts.