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Five Basic Steps to Market Planning
** ONE: PROJECT YOUR PRODUCTION. Your first planning step is to have reasonable estimates of what you will have to sell and when you will want to deliver it. This is especially important as you consider forward pricing; you don't want sell more than you'll have. In addition, you'll need production numbers in order to plan any kind of scale-up or scale-down selling strategy.
Knowing your cost of production will also be useful. If price projections indicate tight profit margins, or even potential losses, you may want to opt for a much more conservative plan in order to cut your losses short.
Likewise, if prices are well above your costs, you can afford to take more risk and may be able to add significantly to those profits. That's important, because it can help you to build financial reserves for years when prices are lower.
Thus, a part of your plan is to analyze both the variable and fixed costs associated with your enterprise. An analysis of costs for each product will tell you your breakeven -- the price at which you can cover your costs.
** TWO: KNOW WHAT PRICES YOU CAN EXPECT TO RECEIVE. As with other businesses, it pays to do market research. You need to keep yourself well-informed on prices and the outlook for the coming year. It helps you know if the price offered on any business day is too low, or if it is a good pricing opportunity.
Once you have estimated costs and expected sales prices, an optional step is to take another look at what you are producing. Is this the most profitable crop, or combination of crops? What other crop alternatives could you consider? At this point you may also want to consider livestock production alternatives. Would it be more profitable to feed corn to hogs or cattle?
** THREE: STUDY YOUR MARKETING ALTERNATIVES. Learn about all of the marketing tools currently available -- such as futures, options, and various types of cash contracts. This increases your opportunities for successful marketing.
It is a mistake to reject the use of futures or options simply because you do not understand how they work. It is not difficult to learning the basics of using these forward pricing tools. Information and advice is available to anyone who is willing to learn.
** FOUR: MAKE YOUR PLAN. Develop a marketing plan that controls your RISK and put that plan in writing. However, you must remember that taking risk is not an evil in itself. If you are financially able to take more risk, you will improve your chances of increasing profits.
-- A LOW RISK PLAN will complete some sales early to start covering costs. Then plan to sell the bulk of your production at a reasonable objective that is based on market outlooks. The low risk plan is most suitable for producers who have large debt and have had to borrow significant amounts to cover production costs.
-- CAUTION: If prices are trending lower, be ready to cut your losses short. Don't hold out in the hope of covering total cost. In years when prices are trending above your breakevens, you can afford to wait longer to lock in prices in order to take advantage of higher price objectives.
-- A HIGHER RISK PLAN will generate more profit in some years, but greater losses in others. Over time, the ability to take more risk will average a higher return. When price trends are favorable, producers who have the financial reserves to cover their costs may want to sell little or nothing early in the season.
These producers with "deeper pockets" can depend more on technical objectives and market outlooks to set their pricing objectives. They also may make upward adjustments in those objectives as long as markets continue to trend higher.
-- SUCCESS WITH EITHER a low risk or higher risk plan will depend on the quality of market information you receive and setting the right pricing objectives.
** FIVE: TAKE ACTION AND STICK TO YOUR PLAN. Your annual plan gives you a place to start. It will be necessary to keep your production estimates up to date and to keep current on market prices in order to track your plan. Of course, the outlook can change with weather conditions and shifts in demand. So can your expected yields, the amount you are likely to harvest and your cost per bushel. You'll want to be sure to keep your plan current with the latest information.
FINDING MARKET PLANNING INFORMATION
The best sources of information will differ with the crop or type of livestock you are marketing. Farmers today can have a wide range of information at their fingertips. Tools such as computerized record systems, the Internet and market information networks provide the latest data in easy-to-use reports. In general, the types of information you will need include:
** INTERNAL INFORMATION: Planning starts with the farm, the resources available, the history of production, and financial statements. Producers who use some form of computer record system will have easy access to the facts they'll need.
To make a market plan, you'll need to determine the acreage you will be planting to each crop, the yields you expect, the number of livestock you'll produce, etc. In addition, it will be helpful to have a cost accounting system that will provide costs per unit to be marketed.
** EXTERNAL INFORMATION: These are the outside factors that will influence production and prices. They include weather forecasts, price reports, news developments, crop reports, production and demand data, market analysis, and pricing recommendations from advisory services.
In the past, farmers had to depend upon radio, newspapers, newsletters and other printed publications delivered by mail to get this information. Much of it was outdated before it was ever received. Only a few farmers were able to get additional information from phone hotlines and phone conversations with an analyst or a commodity broker.
Today, nearly everything needed can be delivered as computer data and electronic network reports. Many more farmers have access to the latest facts.
