Grain farmers have every right to be very proud of their business acumen. Unlike farmers that produce for larger conglomerates, independent grain farmers run every gamut of their businesses. They set strategy around crop mix and capital upgrades. They do the work of acquiring seeds and fertilizer (procurement), and test new ways to increase productivity (R&D). Obviously, they plant and harvest (manufacturing), and they manage finances and people alike (finance and HR). In other words, they’re deeply involved in managing all business functions, just like any owner of a business in any industry.

 

Except one thing – many farmers simply don’t think they need a sales and marketing function to try to maximize price and revenue.

 

 

Sales and Marketing in Farming?

 

To be clear, farmers try to sell their production when prices are good. Nonetheless, they just know at the end of the day that they are price takers, selling their commodity for the same price as everyone else. And it’s just common knowledge that they are one of the only industries that has to sell at wholesale prices and buy at retail prices, squeezing margins in a way other industries don’t face.

 

Lenders (more interested in managing the risk of their portfolio vs. the risk farmers face) often reinforce this anti-marketing attitude. They may tell farmers to sell at breakeven points, which means you might be selling too low or waiting for a price that never comes. Or they may tell you to avoid futures and options strategies that can help you manage the price risk you face. Lenders sometimes play a role in pricing decisions that would never be contemplated in another business.

 

Beneath all this is a little bit of pessimism, in that farmers are unique in having little control over price. If you have no chance at control, why would you focus on marketing? With that in mind, it’s no surprise that the actual work of price management is viewed as something extra and outside of the actual work of farming. As a matter of fact, it’s sometimes seen as a little unseemly and, frankly, kind of distracting.

 

 

The Myth of All Those Price Setters

 

Let’s take a step back. Like any other manufacturer, you are creating a product that requires raw materials to produce your product. Like you, your suppliers AND purchasers create products and services driven by supply and demand.  Unless we’re talking about a monopoly, every business is a price taker with fluctuating financials driven by market forces. For the most part, businesses in every industry use the tools at their disposal to try to improve their price and revenue in spite of what the market offers.

 

• Take the leasing industry for farm equipment. Say you want to take out a lease on new combine. The rate you are offered is directly tied to prevailing interest rates (like commodities, a very efficient market). From there, the leasing company has levers to balance their need to maximize revenue vs. taking you on as a customer. They look at your credit worthiness, length of the lease, and the condition of the equipment. You, on the other hand, are looking for the best price and conditions. Yes, the leasing company “sets” the price, and that price changes constantly based on interest rates and market forces as it tries to maximize revenue.
• Are you looking for a retail product, like fertilizer? Fertilizer prices are stickier than commodity prices, to be sure, and still subject to market forces over time, based on demand and the price of raw inputs. And they are forced to adapt prices based on volume or competitive forces while still maintaining a margin to stay in business.
• Even a manufacturer who sells retail products needs to make regular adjustments to price and is not in a position to simply set the same price for all transactions. For instance, if you want to sell your razor at Walmart, odds are that your margins are being squeezed in return for the greater volume Walmart can handle. The razor seller needs to carefully negotiate price based on a variety of factors, such as prevailing prices, demand for their product, pricing of competitor products, and volume.

 

As a matter of fact, if you go to Google and look up “pricing analyst,” you’ll see that LinkedIn lists about 25,000 jobs.  Businesses across industries spend real money trying to manage prices. Yes, they could simply put a price out there and run with it, and in the process would endanger leaving money or customers on the table. The tools and levers each business uses to manage prices and risk (volume, credit scores, loss leader strategies, futures and options, etc.) are completely a function of their industries.

 

 

Changing Your Perspective

 

By now you see where I’m going. Managing price is not a job for only certain industries. It’s an integral part of any successful business. In the world of grain farming, your tools to managing price include making educated sales decisions based on timing and the futures market. This isn’t an extra burden on agriculture – instead, managing price is an integral business function to help manage long-term success.

 

With a change in perspective comes a change in opportunity. As you look at the world around you, farming is consolidating as individual farm size grows. Hand in hand with this change, we all observe the business caliber of farms skyrocketing. As we’ve said many times over the years, marketing remains one of the best areas for you to gain a competitive foothold. Is this an opportunity that you’re ready to take on?

 

 

Total Farm Marketing Can Help

 

For almost 40 years, Total Farm Marketing has helped farmers be successful in any market condition.

We can help you set up a plan that prepares you for whatever the market does rather than on what you hope it will do.

 

Give us a call at 800.334.9779 to learn more.

 

©August 2024. Total Farm Marketing. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices may have already factored in the seasonal aspects of supply and demand. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Total Farm Marketing and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.