Ten Tips for Successful Marketing

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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association

The FF survey sorted out ten tips from farmers for sound, successful marketing:

1) Focus on a good price, and low costs: The most profitable farms don’t see marketing as a be-all and end-all; they see it as a means to a greater goal: profit. To that end, getting a good price alone won’t ensure success; focus just as much on producing grain at the lowest possible cost.

2) Make time for management: The best marketers do spend more time on sales compared to the average farm surveyed. However, the most profitable farms concentrate more time on management.

3) To profit, accept some risk: The most profitable farms don’t shy away from debt. They borrow more on average than most farms. But by focusing on profit, they don’t let debt get the best of them, or force them into even more risky strategies. (On the flip side, those in the survey who said they took the most chances with their sales also were most burdened by debt). At the same time, the most profitable farms aren’t willing to accept marketing mediocrity, either. That’s important, because producers who accept an average price, also earn only average profits.

4) A plan eases the selling pain: Selling is hard for farmers. But one way profitable farmers muster the courage to sell is by having a plan that provides accountability and structure to the business of marketing. Top farmers in the FF survey were more likely than others to have written marketing plans outlining their strategies and goals.

5) Get to know the basis: Both the top marketers and the most profitable farms know the basis—the difference between cash and futures markets—and are much more likely to keep track of basis levels in their areas. Profiting from the basis requires different sales strategies than simply selling on the cash market. The futures component of cash prices must be separated, through the use of futures, hedge-to-arrive or basis contracts. That’s where the most profitable farms really stand out: they’re more likely than other farmers to use these basis tools, especially for crops they forward price before harvest. And, to make sure they’re getting a good bid, they call multiple sources to get the best cash prices for their crops.

6) Sell in smaller quantities: Psychologically, it’s easier to sell in smaller quantities, because if you’re wrong and prices rise, you still have more grain in the bin. The average farm in the FF survey makes between six and 10 sales of its major crop per year. However, leading farms were more than twice as likely as the average farm to make more than 10 sales. Leading farms also recognize and monitor seasonal price trends for the crops they grow, and when picking a price to sell, they consider profit more often than any other influence.

7) Seek advice and information: The most profitable farms feel even more overloaded with information than most, but it apparently pays off. The most profitable farms consume it all, from print to electronics, at higher rates than other farmers.

8) Know where the buck stops: The most profitable farms tend to be large, family affairs with multiple crop and livestock enterprises and multiple participants in the business. Many of these farms make it a practice to consult other family members who are active in the business. But consultation doesn’t necessarily mean democracy; on almost all of the most profitable farms, a single family member has been delegated the responsibility for making and executing the final marketing decisions.

9) Try new marketing tools: The most profitable farms in the FF survey are willing to employ different marketing techniques, such as futures and options, even if only on a limited basis. They’ve used more strategies than the average farm, though not quite as many as the farms that get the top price. But the most profitable farms put limits on their use of these strategies. After harvest they tend to stick with basis and deferred price contracts if they need to move grain, rather than buying futures or options outright. Before harvest they’re more aggressive: they’re far more likely than the average farm to use hedge-to-arrive contracts, purchase a put option or sell futures contracts.

10) Don’t store it all: Storing grain after harvest and holding for a better price remains the most used and most successful marketing strategy for all farmers, according to the FF survey. Still, the most profitable farms store a lower percentage of their crops in a normal year than the average farm. Not storing could lead to a lower price if crops are simply moved at harvest, when markets tend to be weak. That’s why the most profitable farms aggressively forward price their production during the growing season. The most profitable farms are more than twice as likely as the average farm to forward price more than half their crops.

(Edited and reprinted with permission from Farm Futures, Copyright 1996, all rights reserved)

December 1995