KANANASKIS, Alta. – Farmers’ trash cans would be fuller if they did their marketing plans the way Randy Allen thinks they should.
The Iowa farm management consultant’s plan: no commodity newsletters; no market outlooks; no market guru predictions; no agriculture department forecasts. Those can be thrown out.
His plan includes some mathematics, a pen and some paper.
Allen, who spoke to the Western Canadian Wheat Growers Association convention Jan. 8, said predictions of market prices are useless.
“These people tell you they know what’s going on, but it’s trash. No one knows what’s going on.”
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He said markets are impossible to predict because “every day is a new auction.”
While Allen’s approach is evangelical – he calls himself the Billy Graham of marketing – his views are based on common sense observations. He said weekly market newsletters wouldn’t have to be weekly if the people writing them actually knew what was going to happen.
“They’d be annual, or at the most, quarterly,” he said, to chuckles from the crowd.
He pointed out the large grain and food companies invest in futures and other risk management options because “they don’t know what’s going to happen.”
Rather than basing a marketing plan on expert predictions, farmers should simply calculate the price they need to sell their crop at a profit, said Allen.
Instead of trying to get the highest prices possible for the crop, producers should ensure they can guarantee an adequate return.
“Even if a farmer can get the highest price on all his crops this year – and that’s impossible – over three to five years he’ll eat his lunch (lose money),” Allen said in an interview after his speech.
Making a sensible marketing plan means giving up hopes for the jackpot, and instead dedicating efforts to long-term profitability.
The first step in a marketing plan is to work out the break-even point. This includes variable crop production costs and the fixed costs of farm assets.
Once he has that calculated, and added in a profit, the farmer should try to lock in as many sales as possible, said Allen. But taking a profit can be as difficult for a farmer as giving up the prediction addiction, he said.
When crop prices rise, farmers tend to keep their crops in hopes the price will keep rising. They don’t take profits and often see prices fall instead. But when prices fall, producers also tend to keep their crops, in hopes prices will rise again.
They often end up selling when they need cash, and suffer an even greater loss because prices have fallen further, Allen said.
Producers need to make a marketing plan that guarantees profits and stick to the plan once they’ve made it.
“Discipline is the toughest thing to manufacture in marketing,” Allen said. But if farmers can start thinking of themselves as businessmen rather than gamblers, they might be able to break away from poor marketing behavior.
