With the start of 2021, the obvious “silver lining” is that despite all of the headlines, we are now experiencing some of the best commodity marketing prices we have seen in the last six years. But despite the unexpected rise to profitable prices, there are still some producers feeling as if they were left out of this upswing.
While many producers felt let down from having the wrong bias on the market, others were simply unprepared and/or ill-equipped to deal with the type of price fluctuations we experienced.
On the other hand, there are those producers who weathered the 2020 storm quite well and feel very satisfied with how they marketed to capture wins, and managed their risk. What’s really remarkable, is that for the majority of these producers, this is how they feel most years about their marketing returns.
What makes them so resilient? The magic is not insider knowledge, dumb luck, or a crystal ball. The magic – actually comes from five key characteristics that we see in successful producers across the board.
Test Your Resilience: How Careful are Your Decisions?
As an Ag marketing and risk management advisor who’s been around the block (more than a few dozen times), I’ve had the benefit of having had tens of thousands of honest conversations with a wide array of producers. This provides a perspective that very few individual operations will ever get to see: what it is that makes some producers more resilient to the uncertainty and variability of the markets more than others.
It’s easy to pick out the common traits among operations which operate as consistently successful and satisfied – and the measuring stick isn’t that they sold 100% at the top of the market. In fact, far from it.
Long-term, successful operations are run by producers that take care to alleviate risks by managing their emotions, opportunities, tools, focus, and views in ways that differ from rose-colored, embellished outlooks found at most local coffee shops. Simply put, their preparedness helps them to better weather the storms, and ride out the highs and lows.
This was never more tested than in a year like 2020, where we witnessed what it really means to manage with ‘resilience’.
5 Core Competencies of Effective Marketing and Risk Managers
- Emotional Stabilizer: Understands the impact emotions have on marketing, and plans for it.
You may have heard experts and well-intentioned friends provide the advice: don’t market emotionally. This is actually probably one of the least helpful of the many pieces of wisdom that I have seen or heard as it relates to risk management.
There’s no way around it, selling is emotional. After all, when we talk about selling, in many cases we are determining profitability as it relates to us personally, as well as our farming family. How can that not be an emotional event? You will be emotional – it’s natural and not something to apologize for. Rather, the key is to admit it is prevalent and recognize that emotion plays a central part in our decision-making processes.
The markets are unpredictable, and there simply aren’t enough research reports, expert opinions, lucky rabbits’ feet, or consulting of the stars to tell us where the markets will close tomorrow – let alone months later. Because of this, we are uncertain, and uncertainty with so much on the line, breeds fear. Fear can breed inaction, or in some cases too much action, and opportunities can be lost.
The best that you can do is to stabilize your emotions: plan for it, recognize it, and take the necessary steps to help reduce it.
We have found that in many cases it takes a person, or mentor, to speak with and help calm your natural sensibilities. If you enlist a mentor, ensure that you are speaking to someone who is knowledgeable and experienced, as well as working with your best interests in mind.
- Opportunity Agent: Understands what “opportunity” looks like as it relates to price.
Another key trait that resilient marketers possess is that they, quite simply, have an idea of what a “good price” looks like. A football sports analogy for this is that if you don’t establish a goal line, you just keep running until you get tired and fall down. You need to set the mark for when it’s time to spike the ball.
Specifically, successful marketers study market trends as they relate to price, and they take action when they see they are in that range. Of course, there are many factors that will play a part in deciding what to do, how much to do, etc., but when you reach that defined target, you have reached the pinnacle that tells you that you’re at the goal and it’s time to take action.
The most successful operations plan their first step, they know what a good price is, and they speed up when they see it and secure the opportunity.
- Motivated Activist: Relentlessly proactive and skilled with risk management tools.
When it comes to marketing, one of the most successful traits we see in producers are those who value action over inaction. The combination of keeping a motivated, proactive mindset, while using risk management skills, prepares the business to grab onto opportunities when they’re presented.
Here’s an important, yet tough, question that every business owner should answer: What is a good price to sell? I have asked this question of thousands of producers, and their overwhelming response is: never enough! The truth is that we never get to know whether a pricing decision is “good enough.” Hindsight is 20/20 as they say. Obviously, only someone who is able to consistently sell the highs each and every year has the answer to the question above – and I have yet to meet this person, because they simply don’t exist.
When it comes to managing your price risk, there are only so many “tools” hanging on your tool belt, and they are only effective if you know how to use them, and use them correctly.
Unfortunately, many studies have shown that most producers are “cash only” risk managers. Out of the roughly eight to 10 risk management tools available, most producers use only two or three to their advantage. In many cases, marketing decisions are limited to the cash sales made either when cash flow requires it or the market scares them into it.
Our most satisfied producers typically are the ones who understand the benefits, and limitations, of all the available tools – and, are willing to use them when appropriate. Because they operate from a position of knowledge, they tend to be more proactive and stay ahead of the markets. Too often producers are forced to play the defense and market “reactively” due to an unwillingness to try new risk management method – which is never typical of a long-term winning strategy.
- Centered Mindset: Values “being prepared” over “being right” as it relates to market direction.
“Do you think these markets might go higher?” “Do you think the USDA supply and demand report next week is going to sink us?” “I think corn is going to go to $7.00. It’s drier than a bone and my cousin in Des Moines says they’ll be lucky to raise 50 bushel.”
Grab a cup of coffee in a rural café most mornings, and these are the types of questions and statements you will hear. Ultimately, a majority of producers spend a lot of time discussing their “outlook” on the markets and price direction with peers.
An agricultural economics professor once stated that the average amount of free time a producer spends discussing outlook on price direction is 90%, while they only spend 10% of their time getting prepared for the market. For any successful outcomes to be achieved on a long term basis, those percentages of time spent should be reversed.
As fun as it is to discuss the outlook on markets, the honest reality is that no one can predict where a particular commodity price will close the next day — let alone days, weeks, or months into the future.
Our most resilient marketers value the time spent on getting prepared for the market, rather than spending undue time on prognostications and predictions based on either news the market that has already traded, or hopes for what they want it to do (go higher, of course).
The best marketers have a bias on the market, and they study and listen to research regarding price direction. However, despite their personal bias and the market’s current direction and bias, they actively put plans and strategies in place to insure that if they are wrong, or the trade is wrong, they maintain a clear path forward.
- Forward Focused: Views individual sales and marketing decisions in a long-term, multi-year manner.
Ultimately, each marketing year is different and, as we’ve witnessed, even the best laid plans can go awry. Even those that use the tools correctly, are proactive in their approach, plan for emotion, and have clear opportunity targets, will have a year in which the market simply throws them an un-hittable curve ball.
It’s important to maintain that sense of reality: even the best marketers will suffer a year in which they feel they missed too many opportunities, did everything for the right reason, and simply got punished every time. This is, unfortunately, a part of being a farmer and/or rancher. The world markets of today are simply bigger than us, more volatile and more complex than what they have ever been, and tougher to navigate.
The best marketers are consistent in their strategy and approach to the markets each and every year, and they also have come to grips with the fact that occasionally they will have some less than desirable sales. In some cases, it may be a majority of sales made in a given year. However, our most resilient producers take a very long-term view of marketing and marketing results. The key to their success is their consistency of thought and action.
Great marketing isn’t about selling 100% at the top of the market. Rather, it’s focused on reducing the number of sales in the bottom third of the markets, and doing that consistently over a number of years.
One of the worst mistakes made is getting too caught up in a perceived “bad sale” and letting that experience cause you to second-guess your future selling decisions. If we allow it, a few less than desirable decisions (even when made for the right reasons) can lead to several years of even worse decisions.
I once heard a great analogy as it relates to marketing. When you jump into your truck, which is larger, your front windshield or the rear-view mirror? There is a reason your windshield is bigger, as it’s more important to view what’s ahead of you, rather than what’s behind you. In marketing, take a long-term view, and don’t get caught being too short-sighted.
Become More Resilient with a Forward-Facing Plan
No one could have predicted the events of 2020, or its corresponding effects on commodity markets. In all reality, as crazy as 2020 was, from an agricultural perspective it wasn’t all that different from almost every marketing year. Every year we have unforeseen events, political unrest, weather surprises, supply/demand factors, money flow, USDA reports (to name a few)…all of these roil the markets each and every year.
However, if you are among the many producers we have spoken to who feel less “resilient” as it comes to marketing on a consistent basis, and especially in 2020, you most likely are missing one or more of the five key characteristics that can help alleviate the feeling of unrest. Don’t feel too badly though, as you are not alone, and there is both time and room to build resiliency within your forward-facing marketing plan.
Contact a K·Coe advisor to help with grain or livestock ag marketing strategies and risk management plans.