Tools in your marketing tool box - Do you get good market info?

[melvill]

I understand that a posting asked why I have been absent from this forum most of the winter. I'm back from teaching a million marketing courses and driving a lot of miles this winter.

What tools do you have in your marketing tool box? For over a year I've been asking almost all my farmer clients what they use for their "market information" tool. Painfully, a lot say things like "crusher rep" or "elevator manager" or "auction mart" or "weekly farm paper" or "neighbor". In my opinion, those sources may give farm managers tidbits but they're woefully short of good decision-making information in anything but a general sense.

I think farm managers need to buy dedicated market information. I can just hear it now forum members are thinking 'Here's another government guy telling us to spend more money on something we can't measure a return from!'

Well, here's the challenge: Nobody would drive farm machinery at night without buying lights, so why would we make marketing decisions without having good market info? Most of the "good" stuff we have to buy.

Want to see what market info is out there? Fire up your Web browser at http://www.agric.gov.ab.ca/newsletters/market_clippings/index.html and look at:
-Market Info On The Internet - January 2000 Updated January 2001
-Market Information Sources for Western Canadian Farms - November 99 Updated January 2001
These articles will be updated as soon as I can get at it.

What are forum members using for market info?

Lee

[cowman]

From my experience in the cattle business the "auction market" is the best marketing info available. The "experts" usually don't know which end of the cow to feed, let alone what they are worth. Sit in the market for a few hours and you'll know what your cattle are worth. I mean this is the real world and not some cushy office! I realize grain is a completely different ballgame.

[melvill]

Yes I agree that an auciton mart gives a pretty darn good "todays" value to cattle. What I was talking about in market info for cattle people was things that impact cattle prices here now and in the future - like slaughter steer and heifer carcass weights (here and in the US), US slaughter and feeder futures prices, Canadian basis levels, US and Cdn beef cow numbers, heifer and cow slaughter numbers this year and last year (implications for cattle cycle), Canadian and US cattle-on-feed numbers and the implications, US corn and Cdn. barley prices and outlook and more.

Of course cattlemen that are purely cow-calf may look at some of these and and think "poo-poo" (but probably in more colorful language) but all of them impact the cow-calf man's income either directly or indirectly. If they impact income, they need to be clearly understood to help with planning for possible price changes in the future. That price risk is what kills operations.

I can say that, based on my work with cattlemen that are in the feeding industry, the successful ones watch those things pretty darn close because they know that price risk can knock the stuffins out of their business.

Lee

[ianben]

Hi Lee
Hope you had a sucessful winter.
I started writing here about Feb as I have a dream in which farmers whould use the internet to manage supply and perhaps even fix prices globally. Like most companies we deal with seem to do,
you know, what the market will stand, not what we are offered, and not necessarly the same price in every country. I feel this is the way we have to learn to market if we are to survive in the 21st century.
I looked up your web sites and there are some very good sources of information there, but they can only give advice on the market. They have no way balancing supply and demand when things get out of line due to Mother Nature or government interferance.
We could do this ourselves, with a little trust, now we can comunicate globally instantlly and at little cost.
There must be a better way of removing small percentages of surpluses than stupidly low prices and government suport.

I farm in England if you have not had chance to read ALL the threads posted while you have been away.

Do you believe something like this could be possible???

Regards Ian

[melvill]

Successful winter? Yup, this winter I spent a lot of time teaching price risk management and marketing strategies to a lot of farm managers. The best part about what I do is that I have the privilege of watching farm managers first make small changes in the way they think about marketing and the commodity market place and then come to some strong realizations of how to participate to their advantage. My job is very rewarding!

When I had time I read most of the posts, including yours, to this forum. In my mind getting good information and knowing how to use it are the most powerful tools for farm managers to use to manage supply. In my nearly 15 years doing this work, I've found that many, many farm managers produce first and then try to market their production later. That makes "managing" supply pretty darn tough.

Of course the Internet is one of the best tools for finding the needed information. Unfortunately, a great deal of the free info on the Net is not accompanied by interpretation. Interpretation is one of the things that I believe farm managers need to be willing to pay for.

In the end, in a market economy, free of production distorting subsidies, price is what balances supply and demand. In my experience, farm managers, who subscribe to and use good market info can anticipate over- supply situations, are somewhat ahead of those who don't .

Another alternative is to supply manage production like what is done here in Canada in the diary and "feathers" industry. Even in that case, though, not all producers make money, since the price to the producer is based on the average cost of production plus a margin. Producers whose per-unit costs of production are higher than average are less profitable than those whose costs are lower than the average. There are actually a few producers in those industries that are not very profitable because they haven't taken advantage of technology improvements that increase production without increasing costs or improvements that actually reduce per-unit costs of production.

The other alternative is to try something like OPEC for agriculture. Trouble is if OPEC, with it's small number of participants, can't manage supply, imagine how hard it would be to do the same in primary agriculture when their are literally hundreds and hundreds of thousands of participants.

Let me close with this absolutely true story. My wife' uncle died two years ago in his late 50s of complicaitons of rheumatoid arthritis. He was diagnosed at 29 years and was soon unable to do most farm work. He grew his farm from 320 acres and a small hog operation to several thousand seeded acres, a cow herd and a beef feedlot and very little debt. He told me once that his illness was the best thing that happened to his farm business because his was forced to concentrate on financial management and marketing, not doing the work! He strongly believed in letting price, as inefficient as it is in the short run, be the market signal for over-supply.

(Now watch the posts fly in!)

Lee

[ianben]

Hi Lee
I agree with all you say about marketing, and the way most farmers go about it.
As a "young farmer" I went on a trip round a sucessful farmers farm. He farmed 15000 acres back in 1966 and had started with next to nothing in the thirties. He put his sucess down to luck, starting farming at just the right time, but he also gave us some advice which I have tried to remember.
He said a good farmer could earn £1/hr in the field but even a poor farmer should be able to earn £10/hr in the office. This was where he had had most of his luck.
I have always tried to learn from sucessful people.
I would like to learn from the supermarkets and Mcdonalds. They are the ones who are marketing sucessfully today.
They supply what their customers want, known quality at a fair price,on demand.
As a marketing adviser do you agree this is what our customers want?
As a marketing adviser do you agree that by having large swings in price we are harming our opertunities to find new markets for our produce, and not providing a service to our existing customers?
As a marketing adviser do you agree that now most markets seem over supplied the only solution for the individual is to try to produce more with the same fixed costs?
This is the position I find myself in. I know the commodies I produce are in surplus but the only way I can make a profit is to produce more.
This must be crazy but until someone finds a way to smooth out production I must do what keeps the wolf from the door. However under the present systems I believe the troughs will get deeper and longer and the peaks higher but shorter. Because the more people you teach how to market with your strategy means we will all sell at once, all see the new crop to grow,all hold when supplies are short.
Marketing should be about providing what the customer wants!!!

Regards Ian

[melvill]

Hi Ian. Your post asks several questions. I'll try to answer them with my opinions. The old noggin is working too well - cold and sinus infection is interfering with brain activities.
1) Do customers want known quality at a fair price, on demand? Yes, I think you're right if customer means processor or retailer but not always at the consumer level. Canadian consumers of beef, for instance, have said they want tender, tasty beef not a tough, dry product. However, if we look at the "No name" products that move in volume from food stores, many, many people buy on price only.
2) Do large swings in prices harm our opportuntities to find new markets? To tell you the truth I haven't thought of it to a great extent. My work is almost exclusively in advising farm marketers how to deal with price risk (price swings). I do know that in the past, very high prices for some specialty crops in times of significant production shortfalls (canary seed and some pulses come to mind) have hurt our export opportunities in later years because consumers turned to substitute crops. I can't think of any other examples at the moment.
3) In our situation of oversupply, is producing more by individuals the only way to deal with the price problem? That is only a short term solution. Eventually, any business that produces a product will have to stop production when there is no economic way to increase production at reduced marginal cost. Sometimes producing "widgets" has to be done somewhere else where the cost structure is lower. A perfect example is sugar cane production in Hawaii. I was there in 1993 and saw the last sugar cane field on the islands. Hawaii, remember, was coveteed by the US as a low-cost place to produce sugar cane. Eventually Hawaii's cost of growing sugar cane dramatically exceeded the costs of producing that product in other areas of the world. There's a rule of business: production moves to the location of the lost cost of production.

I appreciate your position of not being able to produce what you produce with a "reasonable" profit level. That's a problem here in Canada, too. One way to eliminate price cycles is to limit production to what will be consumed plus a small margin of safety. In Canada we've done that with the dairy and poultry industries. Again, I ask the question, "How do we get millions of producers world-wide to agree to that idea?" The only other alternative is to use the price signal to limit production. When the price gets low enough, production will fall - witness the dramatic reduction in expected canola and canary seed acres in Canada this year!

Lee

[ianben]

Hi Lee
Sorry to hear you are not feeling too well. Hope you feel better soon.
Your example of lost opertunities is the kind of thing I mean.
I am sure our customers feel the same way we do with fertilizer today, when prices double in the space of a year.
The natural reaction is to try and find a cheaper alternative even though the price may not be more than it was a few years ago. People just react to the change. The larger the price swings the worse customer reaction will be.
Is this not the reason why the list price of cars etc. never comes down. they just offer us better deals or special offers.
The other way I think we do ourselves harm is in discourageing our produce being use as a raw material in an industrial process. These people really need a long term reliable supply at a fixed price otherwise when planning they must use the highest price and then the sums don,t work.
We have quotas over here too on milk and they do have some effect but are hard to get just right. They also then have a value all of their own which I am not sure I agree with.
My prefered solution would be to set some sort of minimum price which would trigger us to cut sales, not production. Leave it in our bin. Sell a percentage of what we had produced at a sensible price.It would not be hard to get more for 70% than 100% at todays give away prices.
I think this is where farmers have the biggest problem with marketing.
We are not willing to hold stocks and keep on selling all we produce at the best price we are offered no matter how low it goes.
Futures,options,marketing skills help but can only mimimize risk.They do not get the prices to rise when they are too low or fall when they are too high. Do they??
In my opinion they actually cause the prices to fall lower or rise higher than the real market would dictate.
Would you agree??
If we could just organize ourselves to supply the market demands we could even out the fluctuations caused by Mother Nature.
Could the internet help here? I think it is an amazing way of comunicating and could be the way to get us farmers humming the same tune.
If the weather is unfavorable for canola this year and those planting figures hold up.
Where will the price of canola be in twelve months?

Enjoying your comments.

Regards Ian

[charliep]

Ianben

I note your comment on canola/refer you to Tom4CWB's comments on current seeding conditions in another. Acres are way down plus seeding conditions are very dry in the west half of the prairies (particularly for small seeded crops like canola). The implication will be not enough canola produced to meet the needs of our traditional customer base (including our local crushing plants). This is somewhat price positive short term (longer term this is negative given it is never a good ideas to send a customer elsewhere looking for their needs) but we still are in a world of massive vegoil supplies (palmoil) and world soybean production. This situation will have to change before we can get improvements in our local canola price.

We seem to talk about wheat a lot in these threads but I like to look at other crops/implciations for world pricing. An interesting change is occuring in the oilseed market in terms of production/where it occurs and pricing. Increased South American is something the world oilseed market is likely to face for some time based on their relatively low cost of production (they are still profitable even in the current low price environment). At the same time, the US soybean price supports provide signals (both in absolute terms and in terms of profit potential relative to other crops) to increase acreage to record levels. The implication is that the world will be awash with soybeans unless weather steps in to trim US yields this summer. On a long term basis, this situation is likely to continue (South American soybean production continuing to grow based on increased acres and subsidies that will keep US farmers growing lots of soybeans regardless of market signals).

I have similar concerns for grain given crop production potential in Eastern Europe and former Soviet Union countries. What will happen as they adopt western European crop technologies?

These issues will make getting agreement on world pricing very difficult given every nation faces a different set of social goals/cost of production structure. The challenge is for farm managers everywhere to be profitable in this environment.

[ianben]

Hi Charlie
I see the problems you see too.
The problem caused by adverse weather sending customers elsehere when supplies are scarce.
High prices having the same effect.
I see the S. Americans, Soviet block as potential competition, more instability,
Lots of potatoes grown in Poland already!!
This is why I think we need to act now to reform the way we market.
I think I explained to Lee how farmers could even out the peaks and troughs in production by holding stock on farm.

I also see less volatility as more likely to achieve the kind of thing advocated in the WP, 10% ethanol in all fuel,9million tonnes of wheat/yr in Canada.
How much would that be in US???
Are we using up some of those soya bean acres now???

This third world competition I am sure is also helped by high prices.
They just want a higher standard of living like the rest of us.
They will send us less tonnes if the price is high because they will pay off their depts sooner. As their people become better off they will use more at home.I read the Chinese government want every citizen to have a chicken dinner once a week. The quantity of grain needed to achieve this was incredible, but I have forgotten exactly how much.

So, as usual, it is impossible to know what the effect of anything we do will be, but I believe there would be lots of winners if farmers could learn how to mange our marketing and achieve stable prices.

Regards Ian

[rockpile]

To Lee,
Doggone it Lee, as I read through this thread, you really began to offend me. As I was groping in the wind working on my drills and tractors, my grain truck, and fighting to keep the dust out of my already weatherbeaton eyes, I did not want to hear that 'wuzzy' buzzward - 'farm manager' one more time this spring. You are right - that information is everything, and I'll be the first to champion that the internet is 'the' tool for market information. But, you have to be persistant and never accept the word of any 'one' party to put your plans together. The more I hear, the more respect I have for Charliep, I think he's got it together. Lee, you are right in saying that many sources of information that too many farmers use comes from dubious origins. I think the worst I've seen is the coffee shop. The next has to be commodity organizations. You have to be skeptical of overyone who has a vested interest. But, the information is there.

Now, Lee, tommorrow, I have some real dirty work to do in the morning. Hopefully, in the afternoon I will be in the air-conditioned comfort of my tractor with the stereo on. I will be assessing the latest market and planning information that I have accumulated. But, please don't insult me by tagging me with a label like 'farm manager', just because it seems so 'today'. I have always been a 'farm manager' (30 years plus), but I really take pride in being just a 'farmer'. Some day, maybe not in my lifetime, but someday, I know in my heart that that simple word will garner all of the respect in the world.
P.S. Missed you for coffee at X-Mas, catch you soon.
Rockpile

[melvill]

Hi Rockpile. It's unfortunate that you felt offended by the term "farm manager". I'm not quite certain I understand why, either. However, if you ever get chance to stop in for coffee, I'm hope I don't miss you 'cause I suspect this'll be part of the rather interesting discussion.

I use that label for a couple of reasons: 1) My wife's uncle, who you read about in this thread, hated the word "farmer". To him it suggested someone who worked long and hard but wasn't particularly astute at business. 2) I hear more and more of my clients refer to themselves as managers rather than farmers. I've asked a couple of them why. Their answer was that they see farming changing with successful farms being run by people who see themselves as business managers rather than "huers of logs and drawers of water" (my phrase not theirs).

I have some background that illustrates that point. When I was very young my father took over my grandfather's hardware store that, due to my grandfather's age and health, wasn't in good shape and hadn't been in quite a while. My folks ran it as well as the farm. He tells me he learned some hard lessons in that business because he tried to run the store like his father had taught him to farmr - "work" hard and the business will take care of itself. Well it turned out that long hours and good displays and large inventories didn't make the "business" take care of itself. Dad had to make some significant changes to his management of the store in order for it to survive. He applied that business philosophy to the farm, too. I'm not suggesting that my forebearers were perfect business managers but it's interesting to look back. That's where I picked up my philosophy of farming is "business management and production".

I believe that, like the changes in management approach that were required in the family hardware store, we are now (or have been for a while) at a point where very strong business management skills are required for sucessful farm businesses. One of those skills is my first love (wel,l second love after my wife and kids and horses and music), marketing.

Oh, oh, probably got under Rockpile's skin again. <grin> I'll hear about it at coffee some day.

Rockpile, hope you're enjoying your air conditioned tractor cab. You and I both remember doing field work with older tractors and having to stop because the dust was in our eyes so bad you couldn't see where your last pass was. Quite a change, eh?

Lee

[rockpile]

Hi Lee,
Sorry that I may have confused you. I tried to stress that management and marketing skills are inate to a successful farm operation. What I tried to cynically ridicule was that somehow you cannot mask this necessary element of an integral component of a farm operation with fresh new buzzwords and re-packaging of what people already knew. During the seventy and eighties, ag specialists roared that we had to become 'production' managers, that we had to be on the front bumper of production technology to succeed. After hearing that, many of my neighbors spent themselves into bankruptcy by being inovative and leading edge producers. Then when that didn't work, the era of 'farm manager' became the new mantra. Well, the funny thing is, that those 'old' guys who are still in business, and doing quite well despite todays' market conditions, myself included, have always had these skills in their back pockets, but like the 'gambler', knew when to hold it, and when to fold it. That is true management. In other words, you cannot provide a simple text book approach to solving how to manage a successful farming operation in this country. You have to have it in you to begin with, and you have to accept what you are dealing with. You must educate yourself in every aspect, including textbook marketing, of farming your farm, but you have to be skeptical of everything out there, because, after all, we ourselves are a marketing opportunity for someone else peddling something, or working on our behalves to maintain employment, and you as the farmer are on the very end of the stick. I feel sorry for anyone who equates the word 'farmer' with 'hewers of wood', because to me that word has to be earned and means that you have successfully accomplished all aspects of that profession. If you have to find other words to explain what you are doing, then that tells me you are deficient in the far too many parts of the complete package.
Regards, Rockpile

[cowman]

A lot of management is plain old common sense. I have a neighbor who is a very successful manager. Some people think he is lucky but in reality he does his research very thoroughly and then takes a very calculated risk and works like hell to make sure it succeeds. This is what management is really all about.

[melvill]

Hey Rockpile, want to know something really scarey? You and I are starting to agree on some things. You said, ". . . . that management and marketing skills are inate to a successful farm operation." You are absolutely right. Those two skills (plus financial management skills) are innate to a "successful" farm operation. Of course there are a number of different ways to define "successful".

In my work in extension, which I began in 1974, I've run into farms that one might argue are "successful" because the owner has survived (but only just barely) but strong marketing or financial management skills weren't a part of the operation.

I recently approached some producers offering to give a short workshop explaining how the the new Wheat Board Producer Payment Options work and some strategies for using them. This was in an area that grows mostly CWRS wheat. The reaction I got from the three guys I talked to was that they weren't interested. One went so far as to say he wasn't interested because " we should let them marketing boys at the Board do their job". These guys will survive on their farms because of many years in business and very high equity from having bought their landbase many years ago. I wonder what would happen if they had only been farming for 15 years and didn't have low debt.

You're right. A successful farm (manager) has a well rounded set of skills including production, financial management and marketing.

BTW, I think you should invest in a cell phone and a laptop computer so you can particpate in these threads while you're in the cab of your tractor.<grin> I recently was at a feedlot where the pen riders took little Windows CE computers with them when they were ridin' the pens.

Lee