SIMPLE STEPS TO BECOMING A BETTER GRAIN MARKETER
BY ANDREA HILDERMAN
Marketing grain is a gold mine or a mine field—it really depends how you look at it. Either way, it’s a process that completes the cycle of farming. All the investment of inputs and time piloting tractors and combines will reap a profit only if the crop can be successfully sold.
Though one may assume marketing grain is relatively straightforward, in practice, it’s anything but. Before even dipping a toe into marketing waters, lots of homework needs to be completed—call it Grain Marketing 101. Those who execute this homework most diligently generally tend to be the most successful.
The first step in any comprehensive marketing plan is to establish a firm understanding of your production costs. This includes understanding the break-even point for every crop. The next step is charting out cash flow needs for the balance of the year. “It’s important to understand how these things ebb and flow on your farm operation,” said Jon Driedger, senior market analyst at FarmLink Marketing Solutions. “Bill and loan payments, input purchases and any other significant financial draws on the business need to be clearly laid out in the plan.” Surprisingly, there are still farmers who are figuring this out in the office of the local elevator as they bring grain in for sale.
Part of creating a solid marketing plan is understanding the particular situation of the farmer and his or her operation. “Besides the cash flow demands, what storage is available for production? How well capitalized is the operation? What is the farmer’s risk tolerance?” said Driedger. “All of these, and especially the last point about risk, really build the marketing framework around which a consultant would craft a marketing plan or schedule for a grower.”
In Driedger’s opinion, the worst-case scenario—and one that happens far too often—is a farmer with a big payment due in a couple of weeks, wondering what he should sell to meet it. “This is a situation in which the farmer has now really given up any control over what he manages to sell that grain for,” he said. “With a plan in place and complete transparency on cash flow demands, this would have been built into a selling plan. Anticipating these needs in advance is vital to selling when the market tells you to, not when you have to.”
Brennan Turner, CEO and president of FarmLead, has much of the same advice as Driedger. “The building blocks to any successful farm marketing plan is understanding costs of production, annual cash flow needs and a full and complete picture of the quality of the production you have to market,” said Turner. “It’s this that paves the foundation of an educated, informed and, ultimately, successful plan.”
In order to understand the market and make informed decisions, Turner believes there is a mound of information that needs to be digested by a farmer. “There’s some basic information like who the primary global competitors are and how their situation impacts you,” he said. “Western Canadian farmers are acting in a global market, so they do need to understand some of those nuances. Keeping up using free or paid daily or weekly analyses can keep you plugged in to what is driving the market that day or that week.”
Also, Turner pointed to the somewhat cyclical nature of the markets. “Over time, you can start to see those cycles and build into your plan a strategy to deal with them—either avoiding having to sell at certain times or taking advantage of traditional good prices.”
Creating a marketing plan requires the same discipline as is given to the agronomic side of the business. Matt Price of Sunterra Farms acts as crop manager for his family’s diversified farming operation, a vertically integrated operation that includes its own specialty grocery stores. “We have a disciplined approach to our marketing plan,” said Price. “We plan out our marketing as part of the overall business strategy. We look to hedge 25 per cent of production by seeding time, another 25 per cent of the cereals by the time they are heading and a final 25 per cent about four weeks prior to harvest. This is a strategy that works for our operation.”
Though Sunterra’s size and scope allow it to put considerable resources into its marketing efforts, Price said there are parallels between this larger operation and smaller family farm situations. “The best price will meet your cash flow needs and your delivery preferences. Price certainty provides assured income when required, at a level you’ve previously determined meets a number of farm goals.” He also pointed out that, because markets are dynamic and sometimes impossible to predict, holding out for the best price is a very risky marketing strategy. This lines up with Turner’s advice to make a sale when you can, not when you have to.
Not every farm operation is as vertically integrated as Sunterra and not every farmer family can devote one person to marketing. Wade and Holly Cusack farm with their son and daughter-in-law in Fort St. John, B.C. in the Peace region. “We hire lawyers and accountants,” said Wade. “Hiring an expert who lives and breathes it every day, who has access to information beyond what my son or I would ever see, just makes good business sense.”
Cusack has worked with a variety of third-party marketing services. “We’ve chosen to work with FarmLink Marketing,” said Cusack. “Really, we work with our particular adviser with whom we have an excellent relationship and rapport. I’ve found it’s important to have a good professional relationship with whomever you choose to work with.” The Cusacks continue to grow their business and Wade has a 10- to 15-year exit plan in the works. “Having a marketing adviser, we’ve found to be useful and affordable,” he said. “As far as we’re concerned, it’s money well spent.”
In addition to thorough planning, maintaining your own ongoing market research is important. Expand your knowledge by shopping your grain around and interacting with buyers and brokers as well as simply networking with your peers. Turner recommends young farmers find older mentors. “2007 and forward has been good to growers,” he said. “Young entrepreneurs have not had to deal with really tough times like older growers might have had to in the ’80s. Ask their opinion and learn from their experiences. There’s no guarantee things won’t ever be challenging again.”
Additionally, a number of easily accessible marketing information resources are available to farmers. For example, the Alberta Wheat Commission’s Price & Data Quotes, or PDQ, is a tool that can aid informed decision-making and allow the user to track prices and basis levels. “It was created to be a resource or sounding board, an information tool, for growers,” explained Alberta Wheat Commission business development and markets manager Geoff Backman. “Grain companies supply pricing information to PDQ in a confidential manner, and an average of prices is published on pdqinfo.ca.
It is a platform to provide average prices and basis values for wheat, canola and yellow peas. The goal is to add transparency and accessibility as well as convenience for farmers looking for a reliable source of grain pricing data.
“Farmers like that PDQ is a non-industry source of basic information,” said Backman. “Even if it’s just used as a price comparison or price verification tool, then it’s providing value to growers.”
Similarly, the Cusacks place a great deal of weight on the non-biased marketing information and advice they get from their adviser. Though they warn that they’ve found certain market advisers to be biased toward achieving outcomes more profitable for themselves than for the customer.
Subscribing to online grain marketing publications is universally recommended. These can include free services such as FarmLead’s Breakfast Brief as well as paid information subscriptions such as FarmLink Marketing Solutions. Visit barchart.com or tradingcharts.com for raw commodity prices. As well, plugging into social media will keep you informed on global market activity. On Twitter, follow marketing advisers as well as weather and agronomic experts.
However you choose to do it, it’s important to ensure you approach your marketing strategy with the same discipline and rigour as you do the agronomic side of your business. Do it right, and you will set yourself and your farm operation up for long-term success.