Most commodities are currently offering forward pricing opportunities. For once, marketing seems simple. Having a plan on paper, however, will make marketing much simpler.
As quickly as the commodity markets rise, they can also unexpectedly turn. A marketing plan will help in making rational pricing decisions.
A marketing plan built into an Excel® spreadsheet is available through the University of Arkansas Cooperative Extension Service and can be downloaded at the following address: http://www.uaex.edu/depts/ag_economics/default.htm.
This tool can help producers develop plans for cotton, rice, soybeans, corn, grain sorghum, and wheat.
Using excerpts from the University of Arkansas Extension crop production budgets, the user is guided through the budgeting process, determination of breakeven prices and yields, and marketing methods and timetables.
Your cost of production:
Sound marketing begins with an estimate of production costs and yields. Those two pieces of information are crucial in determining an operation's breakeven price — the unit price that will cover operating costs. The University of Arkansas Marketing Plan spreadsheet can assist farm managers in this process.
To begin, some preliminary data gathering is required. The best source of cost and yield information is found in your own business records. A record-keeping program that tracks all costs of production can be very useful in developing a marketing plan.
Coupling historic production records with current input prices is a sound approach to projecting costs for the coming year.
In the absence of your own cost estimates, you can use published costs of production from Extension Services and other sources. However, these sources only provide a rough estimate of fixed and variable costs and may not include all costs related to your business.
Marketing methods and timetable:
A final step in the marketing plan is picking a strategy and developing a marketing timetable. There are a number of choices, from cash sales and forward contracts to futures and options.
Basis information for your local market would be helpful in analyzing cash and futures marketing alternatives.
The results or expected prices from various marketing alternatives will likely differ. These expected prices should be compared with your operation's cost of production.
Marketing is an emotional process and it is extremely helpful to calculate price targets or key sales dates. When prices are moving up, it is human nature oftentimes to postpone sales. When prices are moving down, it's common to turn optimistic and wait for prices to recover. This happens frequently.
An integrated marketing plan includes setting price objectives around your predetermined breakeven price(s).
Farm managers may also need to keep track of the percentage of expected production that has been forward priced so that they do not oversell as they reach pre-set price targets or sales dates in their marketing plans.
The final step of the marketing plan worksheet assists producers in tracking what percentage of expected production is already forward priced.
A marketing plan begins in part with an estimate of production costs. Once crop production has actually started and production costs become more accurate, a marketing plan can and should be updated.
The beauty of using a spreadsheet is in the ease and flexibility in which changes can be made. Spreadsheets also allow the user to save and evaluate a number of possibilities.
Break-even prices will differ from farm to farm due to differences in yields and production costs. Rent arrangements must also be considered as these will influence breakeven prices as well.
For more information on commodity marketing, contact your local county Extension office or the author of this article.