Most farmers would agree that selling their production each year is one of the most difficult challenges they face. Yet perhaps because of this difficulty, most also would agree that they probably don’t spend enough time or effort on this challenge, and that they find themselves making the same mistakes year after year.
Why is this, and can anything be done about it? I believe there are two primary reasons marketing is so difficult. First, farmers are, by definition, forced to speculate.
As defined in Webster, “speculate” means to assume a business risk in hope of gain; especially to buy or sell in expectation of profiting from market fluctuations.
Interestingly, this definition is amazingly similar to one definition of “market”: the business of buying and selling a specified commodity.
Second, as if being cast into the role of a speculator isn’t hard enough, a farmer is typically extremely emotionally involved with his production.
This is natural (maybe even unavoidable) considering that the farmer has worked extremely hard to produce the product, has exposed himself to considerable risk in doing so, and, in most cases, is dependent on his ability to successfully market it in order to provide for himself and his family.
Of all the participants in the market, it is extremely unlikely that any of them are coming to the table with as much emotional baggage -- and that is a distinct disadvantage for the farmer. Considering this, emotions usually play too great a role in the decision-making process, and the very concepts that are most important to success are underemphasized.
As for whether anything can be done about this, the answer is yes. Given the critical importance of risk management
in today’s world, working with an outside risk management adviser makes sense for most operations.
Not only is a farmer’s risk extremely high, but the demands on his time probably have never been greater.
Together, a farmer and his risk manager should focus on three areas of concentration in order to create an environment where successful marketing can occur.
These key areas are: risk profile assessment -- a farmer must define his financial and emotional ability to take on the various types of risk management alternatives; money management -- preservation of capital has to be the primary concern; and ongoing consideration of acceptable alternatives -- by constantly evaluating various risk-vs.-reward scenarios, an optimal position of cash, futures, options, and hybrid cash grain contracts can be achieved.
Clayton Pope is manager of AgriVisor. His e-mail address is email@example.com