Seven Steps To Marketing

Following are seven steps that may help in developing a marketing strategy:

1. Decide What to Produce
By following market trends and expected prices for different commodities, a producer can take the first step of marketing by deciding what to produce that will bring the greatest return.

2. Know Costs of Production
By assessing production costs, a producer can calculate not only what is a fair price but what price will give a satisfactory rate of return. This information should be used to establish a target price and will be useful in evaluating pricing and delivery options.

3. Know Your Product
If a producer knows what he has for sale (including quality attributes that may make it valuable), he can determine which buyers will be interested in his product.

4. Know the Markets and the Buyers
In order to expect a premium price, a premium product must be produced. It is important to be aware of what is demanded by each premium market.

5. Gather Information, Including Market Outlooks
Once suitable markets and buyers have been determined, the phone can be the best tool a producer can use in attaining the best price possible for his commodity. Maintaining regular contact with local buyers, grain dealers, commodity brokers, and grain analysts will round out opinion on market outlook required to make a pricing decision. The quality of the crop should be established as soon after harvest as possible.

6. Set Several Target Prices
Knowing costs of production, as well as what the market is paying and is expected to pay, enables a producer to set several target prices for what he wants to receive. Setting several target prices instead of just one price has the advantage of allowing a producer room to respond to changing market trends.

7. Carry Out Your Plan
Once target prices are set, producers must watch the market for opportunities to lock in prices and make a sale.

The key to making solid grain marketing decisions is staying informed. Producers who stay in touch with market contacts have reasonable price expectations and can spot marketing opportunities. This enables producers to gain a range of market opinion and basis levels.

Remember, marketers cannot make decisions based on price outlook alone. Price forecasts indicate trends for either pricing or leaving grain unpriced. Basis, however, is a delivery signal.

Producers should have a crop marketing plan and set reasonable profit targets. Discipline will help meet these targets. Greed can be a destructive human emotion that breeds procrastination and lost market opportunities. The experienced grain marketer will let the market indicate what it is doing before committing to sales. A little time spent watching for market signals go a long way to improving the average price received.

To be a successful grain marketer the producer must stay informed, plan for profit, evaluate alternatives, make a decision, and act on it.

From the Alberta Marketing Manual, Agriculture, Food, and Rural Development, Alberta, Canada.

Grain Selling Tools and When to Use Them

Cash Sales (grain delivered) ...Use when:

• Price in upper 1/3 of price range
• Basis narrow or normal
• Expected price drop seasonal or cycle

Cash Forward Contract ...Use when:

• Price in upper 1/3 of price range
• Narrow or normal basis
• Price above cost of production

Futures (sell position…short) ...Use when:

• Price in upper price range before crop is ready to sell
• Basis wide (means cash is weaker)
• Price movement is unknown or xpected to go lower

Future Fixed or Hedge-to-Arrive ...Use when:

• Price is high
• Basis wide
• Price above cost of production

Option (puts) ...Use when:

• Price is high
• Basis wide or unknown
• Unknown risk with price or yield

Delayed pricing contract (grain delivered) ...Use when:

• Price low
• Basis movement unknown
• Expected price to move seasonably or cycle higher

Basis Contract ...Use when:

• Price low
• Basis narrow or plus
• Expect seasonal or cycle highs coming

Storage ...Use when:

• Price low
• Basis wide
• Expected price move higher seasonally or cycle
• Storage available

Government Loan ...Use when:

• Price low
• Basis wide
• Discounts in the market
• Storage available

Futures (buy position…long) ...Use when:

• Price low
• Basis wide
• Basis expected to narrow
• Trend up seasonally & cycle

Option (calls) ...Use when:

• Price low
• Basis narrow
• Trend up seasonally or cycle

Min. Price Contract (grain delivered) ...Use when:

• Price low
• Basis narrow
• Trend up

Source: Mike Lockhart, NCTC Farm Business Management