“Learning is not compulsory… neither is survival.”
— W. Edwards Deming
We've had it drummed into our heads that farmers are price-takers, not price makers. Implicit in this view is that farmers should not waste their time trying to time their sales or market their own rice. That is a job for wiser souls. We've also been told that the salvation of the U.S. farmer is stronger federal price support programs and farmer cooperatives.
The biggest difference between individual farmers and farmer cooperatives is that cooperatives, at least in an ideal world, should have a better marketing plan than most individual farmers. Cooperatives are run by professionals who are charged with getting the best average return for their members.
Actually, each individual farmer, whether he markets his own rice or his cooperative does it for him, should charge himself with the same task and ask, “Did I get the best return I could for my rice?”
That is daunting because we need a benchmark. Another way to put it: “If the price range on the market last year was $10 to $6 per hundredweight and averaged $7.75 per hundredweight, did I do better or worse than that average?” If you cannot do better than the average price for the year, your marketing strategy needs re-tooling.
If you did worse than the average, in the years ahead as subsidies die off, you just may need to find a different profession.
With a good marketing strategy and a useful market outlook, farmers can remain in business as long as there is a market for their product. A good marketing plan turns farming from a chore to something challenging and sometimes even fun. The really good news is that people still need to eat rice and farmers are increasing their rice yields in the South.
If a farmer has a green thumb, he must also have a golden thumb. The latter is the ability to harvest not just the rice but the rice price as well. We know full well that faced with a difficult burden, it takes two thumbs to lift the burden. If we do not coordinate our producing and our marketing, our farming operation can end up “all thumbs.”
Some questions you should ask of yourself to see if you have your thumb on the pulse of profitability.
- Do I have maximum flexibility to sell my crop? Is my banker and spouse on board with my marketing plan?
- Do I believe I can forecast the market price for rice? How have I done in the last few years?
- Do I sell in chunks or all at once? Do I replace cash with futures and options when appropriate?
- Do I know how my local cash price performs relative to the Chicago rice futures contract over time? Would I know a good cash basis if it was there?
- Who is the best marketer in my area and have I ever asked him how he does it?
As to the last item, we have found that the best people to ask about a subject are those who are most financially successful at a task. Ironically, few ask the winners and yet let those who have no good track record tell them what to do. Winners are often wealthy individuals who got that way by being generous, not stingy, and it is a source of joy for many of them to share their secrets of success with anyone who asks.
Someone once asked, “What is the key to successful selling?” The answer is ask, ask, ask, ask and ask. Farmers may not think they are salesmen but they are. After all, each year they sell their crop.
Don't be a price-taker. If you know your market, have a strategy, act on it and identify market price trends and work with your local cash buyer. This way, you can graduate from a “price-taker” to a “price-harvester.”
For 18 years, Milo Hamilton ran price risk and procurement operations for Uncle Ben's Inc. Five years ago he co-founded Firstgrain Advisory Services and the Web site www.firstgrain.com.