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ECON 337: Agricultural Marketing

ECON 337: Agricultural Marketing. Chad Hart Assistant Professor chart@iastate.edu 515-294-9911. Fear, Greed, and Ego. Fear of making a bad decision -- Watching prices slip away as you wait Greed of expecting even higher prices -- Not taking advantage of good price opportunities

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ECON 337: Agricultural Marketing

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  1. ECON 337: Agricultural Marketing Chad Hart Assistant Professor chart@iastate.edu 515-294-9911

  2. Fear, Greed, and Ego Fear of making a bad decision -- Watching prices slip away as you wait Greed of expecting even higher prices -- Not taking advantage of good price opportunities Ego of wanting to claim you caught the market high -- “Lake Wobegon” marketing

  3. Ego Greed Fear

  4. Changes in Price Volatility Source: Zulauf and Roberts, Ohio State

  5. Historical Soybean Volatility Changes Source: Zulauf and Roberts, Ohio State

  6. Factors Leading to Higher Commodity Prices Source: USDA-ERS, Trostle, July 2008

  7. Marketing Plan To avoid fear, greed, and ego dominating your marketing, have a plan and stick to it. A marketing plan outlines your market strategy and your marketing objectives. It should examine marketing opportunities before and after harvest.

  8. Marketing Objectives • Get the highest selling price • Pretty tough to do • More realistic objective: Obtain better than average prices • Reduce price risk • Cover cash flow needs • Minimize tax liability Look at short and long-term goals for your business

  9. Building a Marketing Plan 5 basic steps: • Estimate number of bushels/animals to sell • Calculate breakeven price • Project price and production scenarios • Compare pricing tools and analyze market opportunities • Develop a pricing plan

  10. Bushels/Animals to Sell • What’s your expected production? • What do you have in storage? • What about on-farm use? Breakeven Costs • What are your production costs? • What are your storage costs? • On-farm vs. off-farm? • What are your cash flow needs?

  11. Scenarios • Seasonal price trends • Weather outlook • Export picture • Livestock outlook Tools and Opportunities • Market tools: Futures, options, forward contracts • Government tools: Crop insurance, marketing loans

  12. Tentative Pricing Plan • Outline realistic pricing targets • Have periodic price targets and quantities to sell • Have patience and be willing to reevaluate price goals • Remember it’s hard to lose money when making a profit

  13. Seasonal Pricing Patterns Source: USDA, NASS, Monthly Price Data 1980-2008

  14. Source: Ed Usset University of Minnesota, CFFM

  15. Source: Ed Usset University of Minnesota, CFFM

  16. Source: Ed Usset University of Minnesota, CFFM

  17. Another Template Source: O’Brien, Grain Marketing Plans for Farmers, Kansas State University, July 2000

  18. Another Template Source: O’Brien, Grain Marketing Plans for Farmers, Kansas State University, July 2000

  19. Another Template Source: O’Brien, Grain Marketing Plans for Farmers, Kansas State University, July 2000

  20. More Examples University of Nebraska: “Achieving Success with a Business Plan: Case Study to Prepare a Grain Farm Business Plan” (CC424) University of Missouri: http://extension.missouri.edu/publications/DisplayPub.aspx?P=G600 Purdue University: http://www.agecon.purdue.edu/extension/sbpcp/resources/mrktplan.xls AgRisk website: http://www.agrisk.umn.edu/library1/a0000037.pdf Iowa State University: “Mapping the Route to Better Prices: Developing a Marketing Plan” - Available on the class website

  21. Decision Trees Source: Usset, U. of Minnesota

  22. Decision Trees Source: Wisner, Iowa State University

  23. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2012/ Have a great weekend!

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