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Marketing is more than just selling your crops. Marketing includes:
- setting financial goals
- assessing risk
- exploring pricing and delivery alternatives
- seeking market opportunities
- keeping your pride in check!
Good marketing takes planning, selling discipline, access to good market information and a good understanding of pricing and delivery alternatives. Expecting to price everything at the market peak is unrealistic.
Developing a marketing plan
There are many ways a producer may choose to market their crops. As such, developing a crop marketing plan is an important part of managing a farm's total business risk. Understanding the steps and options available can assist producers in determining the type of crops grown, marketing tools available, when to establish price targets, and how to determine profitability.
For an introduction to the topic, see the video Developing a marketing plan for your crops.
Marketing requires pricing discipline to control pride. The greed-fear cycle in Figure 1 illustrates the typical reaction to an upward trending (bullish) market followed by a price decline. As prices are increasing, producers tend to hold back on pricing commitments in an attempt to sell at the top. Once the market peaks and starts to decline, greed turns to hope that prices recover.
During the hope phase, many producers still do not sell. The market continues to fall and hope turns to fear. During the fear phase, many farmers are still reluctant to sell. If the market fails to recover and prices continue to fall, fear can turn to panic. If bills are due and crops must be now be sold at the lower price, this becomes a discouraging marketing experience. Selling in stages into a rising market is usually more rewarding.
Figure 1. Emotions of Marketing
Planning to market
Know your costs of production
Before any pricing or marketing strategy can be developed, farmers need to know their breakeven prices. To do this you need to use realistic yield expectations. Pencil in a profit or, at least plan to cover cash costs of production plus family living costs to arrive at a minimum pricing target.
Spread sales over a 12 to 24 month period
The best marketers seldom incorporate the all-or-nothing approach of trying to hold everything and sell it all at the market peak. Spreading out sales allows farmers to target pricing into each of the 3 or 4 market rallies that occur in an average crop year.
Avoid pricing during heavy delivery points
Prices slump during heavy delivery periods as commercial storage space tightens and basis levels weaken. A typical heavy delivery period to avoid is during harvest when many farmers make sales to conserve bin space and generate cash flow.
Gather sources of information
When deciding to price, a variety of information sources should be used. Maintaining regular contact with local buyers, a cash grain broker, a commodity futures broker, and a market analyst will round out opinion to help make informed selling decisions. Participating in a marketing club is an excellent way of becoming aware and developing information sources.
Know your product
Market intelligence is useless unless it is combined with sound knowledge of what is for sale. Submitting representative samples of crop to the Canadian Grain Commission (CGC) for quality assessment helps identify the market channels available to the farm manager.