How much should be spent on marketing?

[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.

[classicalliberal]

That is exactly right, the net revenue, or net margin/net profit however you want to call it. Even with the high input costs, the margins per acre for new crop production in the spring and summer was the best ever. Anyone who locked in spring and summer grain prices and waited to buy thier inputs (which would be speculation) would be making a fortune right now. I wouldn't recommend that approach however.

[classicalliberal]

Ignateif sucks!!!!!

[TOM4CWB]

C.P.;

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

As someone who worked and lived through the 80's... I have a very good recall of what happened.

Being 'humble'... is the key to any business... many folks on the farm... DID not make it. BANKRUPT. FCC finished them.

Say what you like... C.P., I am not the smartest... and the many blessings our farm has received are appreciated greatly...

Therefore I will try to do my best... to help those who ask... with this ole Conservative dirt farmer's logic!

Sorry you don't like it...!

[parsley]

If your mamma's purse is even half as heavy as Tom$CWB's mamma's purse is, then go ahead and scold Tom4CWB about economics. lol Pars

[TOM4CWB]

Parsley,

The interesting part about 'economics'... is that value created through 'prosperity' is a matter of 'investing' in people and the future.

Productivity will create wealth on the long haul... no matter where it occurs.

Theft will unravel the productivity of past generations assets... which makes the analysis of the US incentive spending tougher to judge.

If currency is used to create constructive infrastructure... with long term value and productivity... then it is a smart investment when oil/construction material prices are low.

Where a society breaks down... is when folks lay back and say they 'have it made'... coast on past productivity... and steal from others to 'enjoy taking it easy'. Innovation that produces prosperity... conserves resources and increases efficiencies... is 'wealth' and the 'currency' of our next generation.

The 'gift that keeps on giving'... and true 'value'... is realised when we honour our next generation... by constructively working to make their lives better!

That has been the true value/heritage my mother/father have given me... and if we are intelligent... what we will pass along to our children!

This truly is; 'Faith', 'Hope', and 'Love'!