Marketing strategies are tools in the farm management toolbox
By Jean Caspers-Simmet
Date Modified: 02/19/2013 1:45 PM
DES MOINES —Operating and managing a farm are two full-time jobs. Throw marketing into the mix, and things can be overwhelming.
Nick Mueller, senior market advisor with Stewart-Peterson Group, said his role is to provide strategies to help farmers improve their marketing.
Speaking at last week's Iowa Power Farming Show, Mueller said his strategies are like tools in the tool box. Some strategies are pulled out for just one job, but without that tool the job can't get done.
Outlook is among the fundamentals Mueller considers. While outlook is important, marketing can't be 100 percent outlook-based. Farmers need strategies they can implement.
The biggest thing farmers want to look at in USDA supply and demand reports is ending stocks, he said.
"It's easy to get overwhelmed by all the numbers USDA puts out," Mueller said. "I say simplify. You don't need to look at all the USDA numbers. Start with ending stocks and more specifically, stocks-to-usage ratio. That gives you a better picture of what's happening with demand."
Mueller challenged farmers to look at the numbers a little differently.
"The market is constantly looking for an equilibrium on carryout which it never absolutely finds, but the numbers tell us the amplitude of the move," he said.
He suggests farmers draw an arrow on stocks-to-usage each month indicating if it goes up or down and then look for trends.
"If the stocks-to-usage ratio is getting bigger and bigger, then prices aren't cheap enough," Mueller said. "If stocks-to-usage keeps getting smaller, it means prices aren't high enough to ration demand, and prices should continue higher. That's what we saw in the last (USDA) report. We haven't done enough to ration old crop. Given the tight crop year, the market has a heck of a challenge. It has never rationed demand enough in a full crop year to what we have to do this year, and now we have nine months to do it. It could be a really exciting spring and summer."
If stocks-to-usage keeps going down, Mueller expects prices will go up.
"But it doesn't mean I don't make any sales," he said. "We should be making sales throughout the year. So we have to look for a way to implement that. That's how we use strategy instead of outlook."
He recommends farmers lay out their marketing plan early in the year. They can calculate their break-even and use that as a starting point.
"If your first sale is 50 cents above break-even and then in 25 cent increments, that's great, lay it out," Mueller said. "I adjust my percentages at each sale price. If ending stocks are getting smaller, I lower the percentage I'm selling. If I see ending stocks getting bigger and bigger, I just don't dump everything. I still have my sell points above and below the market, but I increase my percentage."
On the bearish side, acreage numbers are weighing on new-crop corn.
"If we go into a drought, we could see extremely high corn prices," Mueller said. "If we have normal weather, with 98 to 100 million acres, we're looking at 2 to 3 billion bushels of carryout, and now we've quadrupled ending stocks. That could severely pressure prices. We have to be strategic and locking in some prices when we get above $6 to $6.50 for new crop corn."
Another fundamental Mueller watches is the index funds.
"Index funds have dramatically changed the market," he said. "The amount of money they have in the market is way greater than traditional funds ever were."
Another way index funds have changed the market is that they're always long, they never take a net short position.