Derek Squair, president of Agri-Trend Marketing, says there are three things you need to work your grain marketing plan around: cash flow, cash flow and, you guessed it, cash flow. He’s only half serious of course, in that there are several other factors to include in a marketing plan, but mapping out your cash flow needs and pricing the crop to meet them is a good start.
Squair says that when they work with clients to develop marketing plans, they take a step back from cash flow and first look at a farm’s strengths, weaknesses and goals and combine that with risk tolerance to create a one, two and three year plan. “How you market your crop can depend on if you’re planning to grow the farm, hand it over or hold steady,” Squair says. Next, how comfortable you are at forward pricing, hedging or using other marketing tools will shape your marketing plan dramatically.
Then, yes, it’s time to drill down to come up with a very solid cost of production by field — not commodity type, as many farmers do. “(Agri-Trend Marketing) actually uses a cost of production by quarter, not crop type, and have found that there can be drastic differences in the profitability of different fields,” he says. But more than that, Squair says too often farmers underestimate true fixed and variable costs. Every dollar that leaves the farm has to be accounted for if it’s coming out of farm income, he says. And that means hay for the wife’s horse or fuel and food for that annual fishing trip.
“Too often farmers get an unpleasant surprise when they market a crop based on a certain cost of production, only to find the missed ten or twenty dollars per acre in costs,” he says. A profit scenario quickly becomes a break-even scenario, and no one wants that.
Squair encourages farmers to learn to work with marketing strategies, such as hedging, or pass the job on to someone who will. We’ve had these tools for 120 years, but few farmers fully understand how to use them, he says.
He also recommends doing analysis at different points of the year to make sure the marketing plan is working. Did you seed the crops you intended? Did they yield as much as you thought? What quality do you have? Should you be looking at being more or less aggressive in selling? All of these questions need revisiting as the year progresses.