Iowa Farmer Today

In this unprecedented time in agriculture with high input costs and tight margins, livestock producers need to create and follow a marketing plan that specifically adheres to a particular product being produced on that farm.

Tom Clark, associate director of CME Group commodity products, presented a marketing plan he labeled as “critical” during a a recent webinar.

ALTHOUGH GENERALLY directed toward pork producers, the information can be used to develop a marketing plan for any livestock species.

Before creating a plan, producers need to understand the basics of futures, options and hedging.

Understanding these areas will help to create a better marketing plan.

In order to understand and utilize those areas producers need to understand their own operation, including costs and breakeven points.

“YOU NEED to understand certain things about your business,” Clark said.

Once a marketing plan is established, it can be incorporated into the “bigger picture”, a business plan.

Contrary to belief, a marketing plan is not a business plan, but can be used as part of a business plan.

“It’s a plan. It’s a road map,” he explained.

The marketing plan can add discipline to the operation.

Writing it down and having it available in physical form will help producers stick to the plan.

“We want to have the discipline to stick to the program,” he said.

“Discipline is extremely critical.”

Sticking to the program and plan is better in the long run, although it may be difficult in the short run.

Other key information needed for the plan is budgeting.

Budgeting adds critical breakeven information that will be utilized to assess your operation.

“You have to know your cost of production,” he said.

Another important pre-step to a marketing plan is a sensitivity analysis to help determine the correct marketing strategy for each producer.

The plan

The first step to creating a marketing plan is to know cost of production and determining breakeven levels.

Clark faulted producers for not identifying this critical information.

If cost of production and breakevens are unknown, how do you know if your operation is profitable or what prices to obtain when marketing?

The second step is using sound information. In the Internet age, information is available at your finger tips.

But, not all information is reliable.

Although convenient, the challenge is figuring out “what’s noise and what’s real”.

The third step in the plan is knowing your product.

Clark didn’t mean what farmers are producing. “Now, its time to do you homework,” he said.

“YOU ALSO need to understand the other products — risk management tools.”

Producers need to be more aware of what risk management products are available to them, he said.

As a producer, you already have a position in the cash market.

Sitting and waiting can be the difference between existing and going out of business, Clark said.

Knowing the risk-management products available and using them correctly will keep you in business.

The fourth step is setting a target price.

Determine an appropriate price level for your business as determined by your business standards and physiologically.

The target price should reflect your breakevens, profitability, and comfort level with a price.

Producers may lock in a price and complain the market goes higher, but they still retain profit.

However, if the price goes lower, producers have managed their risk and still retain profit.

Evaluating pricing alternatives is the fifth step in the plan process.

“There are other marketing tools you can and probably should utilize,” he said.

Along with futures and options, other pricing alternatives include forward contracts and cash sales.

Clark conceded the best risk managers use multiple tools.

“Don’t put all your eggs in one basket,” he said.

The sixth step is to execute when the target prices hit and the seventh is to review results.

What worked for your operation and what didn’t? Use this information to better the plan for the future and possibly update your marketing plan.

Plan resources

As stated earlier, there is a multitude of information available to producers. Clark suggested these Websites as tools in creating a marketing plan.

CME Group: www.cmegroup.com

USDA: www.usda.gov

National Agriculture Statistics Service (NASS): www.nass.usda.gov

Livestock Marketing Information Center (LMIC): www.lmic.info

National Pork Board, Pork Checkoff: www.pork.org

National Futures Association (NFA): www.nfa.futures.org