Two critical pieces of market advice for young farmers

Surprisingly simple ways to set yourself up for long-term marketing success
by John DePutter, February 25, 2020

When it comes to commodity marketing, most farmers are not happy with the results they generate. There are two reasons for this:

  • Some people are not happy because they are not good marketers.
  • Some people are actually very good marketers but don’t know it.

Now, farmers of all ages can change these things. Anyone can improve their marketing skills and their understanding of success.

But the best place to start is at the beginning.

If you’re a young farmer, why not set yourself up now to avoid these pitfalls? The sooner you get started with good marketing habits and a true understanding of success, the more profitable and satisfied you’ll be over the long haul.

Here are two things you can do now to be a successful marketer.

1. Keep track of the average crop prices for your area.

Are you surprised by this tip? It’s amazingly simple.

Here’s how it works.

If you sell your crop to a local elevator, keep track of the weekly closing price at that local elevator for each full marketing year. At the end of the marketing year see if you beat that average price.

If you sell your crop fob the farm bin, keep a weekly closing fob truck price and check at the end of the marketing year to see if your average was better than the weekly average.

If you find that you’re able to beat the average price most years, you should consider yourself a successful marketer.

You may wish to keep working to improve your track record, but you should not feel dissatisfied with your marketing.

If you do come in below the average price, then at least you have an accurate picture of how you’re doing. You have a baseline to work with. This way, as you make changes, you can watch your improvement. This, too, will give you a better feeling of success.

By monitoring your own track record and comparing it to the market price, you’ll have a true, realistic gauge of your performance.

Some growers are only happy if they catch the highest price with most or all their crop. They want to go for the big win. They want the rush of being a hero and looking smart. But that’s not a reasonable gauge of performance. If this is how you gauge your success, your standards are very unrealistic. You’re bound to be dissatisfied with your marketing. You are setting yourself up for your own self-perceived poor marketing.

If you are a young farmer, you may be especially eager to hit the ball out of the park.

You want the big wins, and you want them now. You want to prove that you are successful. You want to know that you can make this work.

But now is the time to set your sights on the long game. A healthy dose of perspective now will give you the benefit of real, long-lasting success later.

Remember, success is not hitting the highs with your sales. Successful marketing is quietly beating the average price most years. Perhaps most importantly, success is selling for a profit.

Most farmers don’t know how to keep score; they don’t know how to assess their marketing decisions. They usually remember the highest price they could have had. But farming is a bit like golf. How many golfers hit a hole in one every day?

Keep the long game in mind. Keep track of your sales and the average price. Then you’ll get an accurate picture of your success, over time.

2. Adopt the simple approach of incremental selling.

For many farmers, the best marketing technique is to sell a crop over the course of several months in increments of about 20%.

The incremental sales can be doled out during seasonal rallies, and the timing of the sales can be fine-tuned with the use of chart signals, tone signals and a few other “opportunity recognition” signals from the marketplace. Here’s why it works:

  • If you can consistently beat the average price by a little, you will have an edge over most farmers. By making sales into rallies, avoiding dips and spreading sales throughout the marketing year, you have a good chance of selling your crops at a price that’s above the average. Usually a large percentage of total production is sold into the lower half of the price range of a marketing year.
  • You can make a mistake and it won’t be a big deal. It’s risky to be an all or nothing player, aiming to hit the top with most or all your crop. Doing this will sometimes result in hitting the bottom of the market with a big chunk of production. With incremental selling, you’ll avoid this kind of volatility.
  • You can weight sales – early or late. If you believe the long-term trend is up, you can weight your incremental sales toward the latter part of the marketing year. Or, if you see a risk of an ongoing downtrend, you can start with some relatively aggressive forward contracting before the crop is planted, holding relatively light percentages through harvest and beyond. Farmers who need to sell a lot of crop by harvest for cash flow reasons can start sales earlier in the season than those who don’t. If cash-flow is not an issue, you can use a very wide time window for the incremental process.
  • You can save yourself some time and stress. Being an incremental seller means it’s less important to get an outlook right. You don’t have to spend as much time seeking outlooks. You simply put yourself into a position of taking advantage for a nice rally if it comes along. If a deep dip happens, you can ride it out until the next rally. There’s less research needed, less time involved, less emotion with each decision.
  • You can cope with both bull and bear trends. Sometimes farmers find it hard to sell on the way down. Often, bear markets seem to go on and on and you’ll find it hard to sell because the price was higher yesterday and last week. But if you sell just a little, you won’t feel so bad. It lightens the risk. Conversely, sometimes farmers find it hard to sell when a market is high and profitable. You’ll hear all sorts of optimistic forecasts when a market is on the rise. They “know” the price is going to be higher tomorrow or next week. (Where were all these forecasts before it started going up?) The bullish news tends to make it hard to pull the trigger. But if you sell incrementally, it can be easy to pull the trigger.

The best time to get started is now.

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