A good marketing plan tries to address a simple question: At what price am I willing to sell? The marketing plans I write answer this question by featuring price objectives (including a minimum price objective that is consistent with local production costs) and decision dates (see my Web site at www.cffm.umn.edu/GrainMarketing/MarketingPlans.aspx).
Price objectives are easy enough to understand, but in my last column I suggested that a marketing plan based on price objectives alone is flawed. Decision dates will complete your plan. What are decision dates, and how can they transform your marketing plan into a real plan for action?
Let's start by reviewing why price objectives alone cannot form the basis of a complete marketing plan. First, there's the problem of setting unrealistically high price objectives.
I recall a conversation I had with a soybean producer in 2004 (the last time soybean prices climbed over the $10 mark). The market sported a strong uptrend and great volatility. This particular producer was firm in his conviction to hold soybeans in storage until the price reached $20/bu. In this case, his plan for action became a plan for no action, due to his trust in an unrealistically high price target. If he's still in business, he has a tax problem to go with a high storage bill.
Price objectives pose a different problem for producers waiting for the top of the market. Their thinking might go like this: “Did you say that corn prices were $1 higher since harvest? I'm waiting for another 25¢, and then I'll make a sale.”
On the other hand, it could sound like this: “Ouch. The market was down 50¢ last week. I'll make a sale just as soon as the market gives me those 50¢ back.” Waiting for the top becomes a never-ending game of procrastination. In the words of Mark Twain, “Never put off until tomorrow what you can do the day after tomorrow.”
Decision dates are important to a marketing plan because they offer a solution for our natural desire to put off important decisions.
A decision date is a date to make a sale even if your price target is not reached, as long as the price is above your minimum price objective. Decision dates are a call for action based on time, not price, and they transform a marketing plan into a real plan for action.
Let's look at an example of how a decision date could have transformed a producer's $20 price objective into a plan for action.
An action plan could be written this way: “Sell soybeans for $20/bu., or by the last day in June, whichever comes first.” In this case, the simple addition of a decision date would have helped our friend sell $9.50 soybeans and avoid the $4.50-6.00 prices that persisted through much of the next two years.
Now that you understand how decision dates work, the accompanying charts explain why I like to scatter my decision dates in the months of March, April and May. A good picture, they say, is wortha thousand words.
Do you have some old-crop corn or soybeans in storage? Are you waiting for $6 corn or $15 soybeans in your postharvest marketing plan?
I won't tell you it can't happen, but you might want to incorporate decision dates into your thinking just so you won't forget to get something done while prices are good.
Ed Usset is a grain marketing specialist for the University of Minnesota Center for Farm Financial Management (CFFM). He can be reached at email@example.com.