BRANDON – How many of you make marketing plans for your crops?
When members of the Manitoba Canola Growers Association were asked that
question during Manitoba Ag Days, not a hand rose among the hundreds in
the audience.
Some could have been avid marketers too shy to admit it, but to two
marketing professionals and the president of the association, it
revealed a relatively accurate picture of a basic flaw in most farmers’
operations.
“I hear from the crushers that every year less than five percent of the
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canola they buy is forward-priced,” said Manitoba canola growers
president Ernie Sirski.
“It just shows up on the driveway.”
He estimates the same is true for other price protection strategies,
such as futures and options.
It’s something he and the specialists would like to change.
“We’re trying to promote producers to develop a marketing plan and then
stick to it,” Sirski said.
Alex Stewart, a management consultant with Scott Wolfe Management Inc.
in Headingley, Man., said marketing is the great blind spot for most
farmers.
“Farmers are generally fabulous producers, a lot are good managers, but
(few have any marketing strategy),” he told the canola growers.
A small increase in average price returns for a crop can equal a
substantially bigger decrease in input costs, he said. For example,
boosting the sale price of a 30 bushel per acre canola crop by one
percent from $7 per bushel will bring in an extra $2.10 per acre. A
fertilizer bill would have to be cut by up to 10 percent to equal that
gain.
“It’s much easier to get a change there and they’re better off spending
their time on that,” Stewart said.
Analyst and trader Ken Ball of Benson Quinn GMS said futures and
options intimidate many farmers because they seem complex – which they
are.
And he said many farmers don’t see futures and options as a way to
reduce risk – they see them as a potentially dangerous gamble.
They can be a gamble, if a producer uses them in that way, but they can
also be used to take some of the gamble out of marketing a crop.
For instance, for the 2002-03 canola crop, producers may have an
opportunity to lock in a basement price that will give them a
reasonable profit, plus give themselves the chance to jump on a surge
in prices, Ball said. A call option based on the present November 2002
futures price could come in handy if that futures price is undervalued,
which Ball thinks it probably is.
For this year in particular, producers should consider a marketing plan
that can gain from price fluctuations.
“It is a year where we’ve got some extremes coming.”
Ball said futures and options can give a producer more choices than he
would have with a crop simply sitting in the bin.
A marketing plan doesn’t have to include futures, options or forward
contracts. It can simply lay out the prices at which a farmer will sell
his crops in the cash market.
Sirski said a farmer needs to know his cost of production, his
long-term average yield, the reasonable range of prices he can expect,
and the price that will give him a sufficient return on investment.
Stewart said a farmer should try to buy some security by accepting
reasonable profits for a portion of his crops, rather than hanging onto
everything in hopes of a rally.
“If you make a marketing plan and know that you can make a 10 or 15
percent return at $7.50 (per bushel of canola), why don’t you sell when
it gets to $7.50?” Stewart said.
Setting price targets and then failing to pull the trigger can allow
profits to slip away when the hoped-for rally never arrives and prices
drop.
The point of a marketing plan isn’t to guarantee high prices, Stewart
said. Rather, it’s to limit the impact of unexpectedly low prices.
