How much should be spent on marketing?

[dmlfarmer]

My New Years resolution is to do a better job of marketing the crops that I grow. So I need to know how much money top producers are budgeting for marketing the grains they grow. Is there any benchmarks on the amount of money ($/tonne or % of gross income) that should be allocated towards marketing crops?

By costs of marketing I am looking for more than simply the costs of phoning a number buyers and taking the best price. I am trying to find out what top producers are or should be spending on everything connected with marketing including costs of finding buyers, hedging and options costs, risk management costs, dollar value of time spent following markets, market information and analysis costs, etc.

It seems lots of top producer can tell me exactly what their production costs per tonne or bushel are but there seems to be little information on what farmers should be budgeting for the marketing of their production.

[Fransisco]

I find that it's not so much a question of cost as it is a question of time. For instance you can spend a lot of money on very good newsletters, but if you hardly ever get around to reading them and thinking about what's going on your not going to get your money's worth out of them.

[SASKFARMER3]

I have a couple i pay for and a few free. Plus about 10 market pages each morning plus paper on line. Takes about 1 hour. Black berry gets me info all day. Information helps out a lot. Years ago paid for expert only to find he was copying a free report I got every day.
Have a good one.

[TOM4CWB]

dmlfarmer,

The most important input to making 'good' marketing decisions... is understanding the market.

I would think a minimum cost is now at least 3 hours a day... with DTN and a couple of good newsletters as input!

Getting unbiased good information... is the biggest challenge... as clearly the 'regular' media is not here to give us solid economic information that can be used to make our decisions upon!

[cottonpicken]

I am not sticking up for ignatawierdo,but that article sucked.

If you could go back one year in time and say all the things that happened this year to all the talking pin head experts they would have thought you were a raving lunitic(something i can relate to).

365 short days from now it will be obvious to everyone what is happening.

[wilagro]

I agree...it was an attack on Iggy by someone with a bone to pick and who was clueless as well.

[TOM4CWB]

C.P./Wilagro, If you were doing business in the late 70's early 1980's... 2008-09 looks like a walk in the park.

Then it was 20% interest... inflation through the roof... twice the unemployment... we have a VERY long way to go down... to get close to where we were then!

This is looking like a 30 year cycle...

[TOM4CWB]

dmlfarmer;

How much are you responsible to manage?

A decent size family farm... will gross well over $2 million... which means $4M in money management.

If a good manager looks after this business... they could easily return $300K for the business in a year.

Good Labour management is the number 1 issue... so the CEO/manager can actually do the work... to earn the $1,000/day... they should be able to create.

[cottonpicken]

Tom i think you should give up trying to understand economics.

Interest rates went to 20% because of inflation,the economy could just barely handle it.

The baby boomers were in their prime,the amount of debt in the system was managable, things were different,we still had descent production bases.

Then started the worst bear market for commodities.

Now we have massive inflation,but interest rates cant be raised.

Why?

Unmanagable levels of debt everywhere.
An upside down population pyramid.
And a consumption based economy.

Will the bond market drive interest rates higher?
I doubt it,because just as i predicted a year ago,the government is now buying its own bonds with printed money,keeping yields low and interest rates down.Monetization of debt.
What does this mean?
Hyper-stagflation coming down the pipe.
The usdx is fallimg into a dark hole.

The catch of the situation is that the tough descisions that need to be made wont be because those descisions would kill our economy.

[classicalliberal]

if you don't have any extra cash, talk to your banker about opening a futures account, if you don't already have one and sell futures for any delivery period that you see is profitable. As long as your banker knows that you are selling futures and not buying futures, then I'm sure he/she will be happy to get you the margin cash to open futures trading accounts for hedging purposes.

[TOM4CWB]

Classyliber...

I would NOT have a futures position... unless a full marketing plan... and input plan... is in place that can be taken to the bank and approved.

The markets are very Volitile... and if a large 'Short' position is taken on future production... it too often happens that at the top of the market... family, bankers, or management itself loose nerve....

Shorts are pulled off... and the market drops... causing a massive loss.

Cash selling has proven itself over the long term just as high a return as hedged selling.

Good management CAN mix the two... and perhaps flatten out income/expense streams... and raise profitability by maybe 10%.

It however does not take many blunders... do have the reverse senario... without good training and management!

KNOW what YOU are planning to acheive... and have family/management/Bankers approve the plan... before you do anything!

[cottonpicken]

If your looking for outside help,stick to the guys that are around a 70% success rate.Nobody can hit ag markets all the time.They are notorious for being the most volitile on the planet.

Acre/dollar cost averaging probably doesnt work with this expense.

If you love doing it do it yourself,if you hate it hire it out.

[classicalliberal]

In my experience as a grain trader, selling the cash is the cheapest for a farmer, however, by using a futures position instead of a cash position, you are much likely to get a better basis, and therefore a better cash price when you add your futures, gains/losses, cash gain/losses and currency gains and losses from selling a better spot basis. When I traded grain, we used to make the market for the grain we traded since the un-sophisticated feed buyers wouldn't post bids anytime forward more than 3 or 6 months at the most. We would, because of the risk premium, offer cash prices forward but at weak basis levels. By having a futures position, you don't give up the basis improvement that you would have by selling the cash forward. Also, I am already short in the market for 2009 and 2010 futures hedges which right now have money in the accounts. If you do it at a lower level and the market goes higher, there are margin calls whcih cost interest, but it is the price to pay for managing risk. You could also buy options, and all that you would lose is the premium on the option. Generally, at this point, I would use futures rather than cash, unless someone is really short, and that usually happens in the spot months, not for future delivery. But a good forward contracting program, even if you don't use futures is a very good idea.

[charliep]

There are a lot of commodities that do not have futures contracts as well so a needed factor down the road will be to look at other alternatives for managing price risk (opportunity and protection). Off the topic but one of the areas that I think will come more into vogue down the road is looking at risk from a supply chain approach.

Parsley introduced me to a U.K. brewer last year that talked a lot about their approach to managing supply risk (not having quality product). Similar to Canada, barley acres were declining in the UK. The brewer was not concerned about price as such (only a small part of the cost component of their malted products/beer). So their approach was to work with their brewers to develop long term contracting for farmers (guaranteed supply) for a price that the farmer would find profitable and be willing to make long term commitments on.

To the original question, I suspect the answer may also be how involved you want to be in the marketing of your product - may definition of marketing being selling a product based on quality parameters versus simply dumping in an elevator for the best price of the day. If you are a commodity seller, then your biggest expense will be time and some newsletters. If you are actively marketing your grain as a product (seed grower, organic, contract with maltster/miller, etc), then your investment of time and money will go up but so should the margins.

[TOM4CWB]

Charlie,

Good points... in the end a 'wholeistic" approach will create the least risk... and best net returns.

Hopefully NET RETURNS are what this is all about.

Many banks had pulled in support for margin account financing... and buying cash fertiliser on the 20th of July/08 was as dangerous as going long... and holding. If a person had gone short... that would have been a hedge... but buying fertiliser on a industry scare tactic (at the huge historic top) has never been a good idea!

Japan (a good historic track record 1990-now) is a great example of what is likely to happen to the US in the next 5-15 years... unless the 'New World Order' gets greedy and tries to push the US over the edge.

But this is all a part of marketing our farms... to get low inputs... and high average prices for our produce... creates the.... NET.

It is all about the NET REVENUE.