Proof mathematically that marketing works

[rook]

I remember reading an article in Country Guide over the past year or two about a professor at U of Guelph that did a study in this area, comparing different pricing scenarios. Of course he was using corn but the trends should have some correlation. I don't keep my magazines and I'm busy spraying so I can't dig into it right now but will try to in the future. Nothing about his conclusions sticks in my mind right now, maybe all the scenarios were a wash.

[farmaholic]

tweety, You pose a question I couldn't even begin to answer or if anyone even has the data for both sides of the comparison. Which numbers do you use and the possibilities are endless. You would have to have a Masters Degree in Actuarial Science to answer that question. To me it seems theoretically impossible.

[charliep]

Okay I will have a crack at it. I am not dealing with a whole crop - just for canola to sold off the combine. I have not included basis or option strategies. Just trying to make simple.

Looked at the November futures (weekly) from January to October using the years 2005 to 2014. This is 44 weeks of Friday closes for each of the 10 years. I then divided each year into quarterly averages: January to Mid March (planning time), Mid March to end May (spring), June to Mid August (summer) and Mid August to Mid Oct (harvest). The logic is to compare new crop pricing for a November contract over the period you might use as hedge to the futures price in the fall if you sold off the combine.

The first thing I did was an 10 year average price for each of the quarters.

Quarter 1/winter - November futures average $450/tonne.

Quarter 2/spring - November futures averaged $465/tonne.

Quarter 3/summer - November futures averaged $461/tonne.

Harvest - November futures average $436/tonne.

From this very simple and perhaps flawed analysis, the worst time to price canola for needed sales to pay fall bills is harvest time. The best is spring.

I then divided things up to look at each of the years to find out what quarter had the best and worst average November futures.

First surprise to me was only 2 quarters (spring and fall) took either of the extremes.

Spring (now) was the highest priced quarter (November futures) in 6 of the 10 years. Fall/harvest was the highest price in 4 of the 10 years (best price off the combine).

Surprise surprise, the lowest average November futures occurred off the combine in 6 of the 10 years. The other priced periods were quarter 1 (3 times) and quarter 2 (once).

What this tells me is that making the decision to pass on a spring price like today or when ever the canola market stops moving higher puts you in the category of potentially being really right or really wrong depending on the the rest of the summer. Place your bets/take your chances.

If you question was about the put premium, my response will be I buying insurance. Paying the money/not collecting is good thing. If you are sure prices can only go up/are rich enough to endure the pain of potentially, save your money.

[charliep]

Okay, there are 3 quarters which had the extremes. Also the last sentence referred to the pain of lower prices. too easy to hit send without proper editing.

[tweety]

So if you were going to 6 month DCA, the majority should happen December to June. This is personally what i do, along with reading crop conditions - like a drought - like excellent growing conditions - etc

Now how would that compare to doing different forms of marketing woo (risk management strategies)? Would i be ahead? Are risk management strategies a guaranteed plus on the above very simple DCA strategy? If so can it be determined by how much? Or is it a wash on long term average? Me thinks it would be a wash, good bad risk management decisions averaged to null benefit.

[charliep]

I too some extent agree with last sentence. I will get cursed for a bad analogy but here goes. Marketing is like golf - no ideal plan for everyone. Having said, the outcome is same - get the ball in the whole with as a few a strokes as possible. The strategies every golfer uses will be different. The clubs in your bag are the tools. Pick the one you are comfortable with for the shot you want to make. You can get the driver and blast it who knows where. You can jockey down the fairway with safe shots using your 7 iron.

[Hopperbin]

Klause are you at 5 percent sold for new crop? Does not sound like you.

[PrairieDude]

Does anyone use farm link or agrtrend or achieve. Just curious where their sales plan is at. Who throws the best dart

[samhill]

I just use Dad'sadvice:

If you always take a good price, you'll never have a bad one.

KISS

Ha Ha

[tweety]

So am i left assuming marketing is bullshit?

[blackpowder]

Explain what u mean by risk management.
Are you talking options collars to assist in paying for a "floor price".
Or just talking forward selling physical.

[tweety]

All the risk management stuff that's taught in week long courses that every good little farmer is supposed to do.

puts calls basis contracts (nothing like a good basis on a shitty price to improve the bottom line!) futures... Kind of everything but DDA or daily cash price. Although DDA could be argued as risk management, not for this discussion as its just as simple as daily cash price.