Iowa Public Television

 

Producers move forward with risk management skills in hand

posted on June 1, 2001


Because agriculture is such a capital-intensive endeavor, those who are involved in it must maximize return, whenever possible. In most instances this has meant paying greater attention to production. American farmers are good at producing nearly everything. But that prowess alone has not been enough to sustain farming enterprises. For that reason more producers are turning to the other side of the ledger and are trying to be more effective marketers. Many are finding help from educators. A case in point is the Texas-based "Master Marketer" program. In this, the second a two part examination of the program, Producer Tyler Teske follows a couple of graduates home.

The Cleveland Ranch is operated by Bedford Jones and his father Frank. Both have master's degrees from Texas universities and both have been farming and ranching their whole lives.

The ability of the pair to produce commodities was greater than their knowledge of how to market their products. To fill that knowledge gap, they participated in a Texas A&M Extension program that teaches producers to use marketing tools.

Frank Jones, Cleveland Ranch: "The hardest part of marketing is spending a little time every day thinking about it because you know, when the phone rings and you have a tractor that's broken down or a calf got out on the highway somewhere, you don't have much time to think, ‘I wonder what the market's going to be today,' " and then when you get home that night, you say, ‘whoa, it's down the limit, I should have done something this morning' or at least be aware of it. The Master Marketing Program made it much easier and gave…..the tools made it much easier and seeing how the market worked and what it would do for the cash flow, gives you incentive to work on it every day."

The Master Marketer Program is a multi-session, marketing intensive workshop designed to help producers understand and utilize risk management tools including market analysis, futures and options, and crop insurance.

The culmination of the four, two-day sessions is a marketing plan. Participants gather according to their type of operation and devise detailed risk management plans. The plans incorporate risk management tactics learned during each session.

Written marketing plans are becoming a requirement for loans at banks across the country. At American State Bank in Floydada, Texas, a detailed marketing plan is now one of the main factors in financing agricultural producers.

Wayne Parkman: "You know, we want you to project how you're going to marketing your product. What prices do you anticipate? What options of marketing are you going to use? (edit) I like to see a marketing plan and of course, as a banker, I want to see more of the calls than the puts, but I like to see that in their plan because it does…it doesn't insure profitability but at least we can help find a break-even with that deal."

(SLUG)

Marketing plans like those developed at Master Marketer sessions help producers use historical data to focus on realistic financial goals for their operations. Such plans don't ensure a profit, but Master Marketer Program Participants have seen an average increase from their farming operations of nearly 32 thousand dollars a year, or eight percent.

While many producers have used risk management skills to enhance the profit potential of their operations, Larry Jones took the skills he learned through the program and put them to a different use.

Jones attended a Master Marketer session which concentrated on row crops. That first session whetted his interest in marketing and one year later, Jones found himself at a second Master Marketer session geared toward livestock and feed grains.

Larry Jones, MarketTrakker: "The greatest benefit, I think, to a person in the program, is learning how to develop a market plan as a producer, and not only learn how to develop that plan but learning how to implement that plan through the strategies and techniques that they teach in the program."

Using his newly acquired marketing skills, Jones realized a gain of nearly 30 percent from his own operation. His interest in marketing led him away from cattle and row crops and into a different business.

(SLUG: MarketTrakker office)

Jones is now the owner and president of MarketTrakker, a web-based marketing business. The goal of the company is to help producers of row crops manage their risk, often using many of the tactics taught through the Master Marketer Program.

One element gleaned from the program is the written marketing plan. Included in the detailed plan are input costs and yield data from the past five years. Those two pieces of information help producers to accurately estimate their real costs and yield potential, as well as a break even price for their crops.

And on the marketing end, spouses and lenders are included in the decision making process to help identify the level of risk a producer can tolerate.

Larry Jones: "The greatest benefit is working with producers and seeing a difference in their bottom line. We're able to help them achieve a higher bottom line, to achieve a profitable price on their crop and then, participate in any rallies later in the market. So, the greatest objective is working with the producers and seeing the difference we can make in their outcome.

Jones anticipates MarketTrakker will market more than 200 thousand acres of crops this year.

(slug: Tractor)

Two thousand of those acres belong to David Carter who raises cotton in western Texas. All of his land is irrigated, and he has taken advantage of new technology such as low energy irrigation systems to efficiently utilize his limited water resources.

Despite the efficiencies and his ability to grow a crop, Carter knew he could do more for his bottom line.

David Carter, Leveland, Texas: "at least in the last 5 or 6 years, there's been some great opportunities to enhance your bottom line, by just taking a few simple positions in the market. Market Tracker doesn't get wild with any of their positions but I know for a fact, the market swings are there and we need to be taking advantage of them, but I haven't been."

MarketTrakker will help Carter to enhance his revenue by combining market positions with his traditional income flow from the local cotton cooperative.

Carter's skills as a farmer have also been enhanced by the marketing plan. Yield data revealed he had been overestimating the income potential from dry-land portions of his fields. This year, dry-land areas are not likely to get much attention after planting, thus saving money on input costs.

(slug: SOMETHING)

Despite low input costs and high yielding fields, Carter still needs to minimize losses and maximize the profit potential of his cotton.

David Carter: "As a farmer, sometimes, I tend to neglect the markets or you know, pretend they're not there…It's equally important as getting out in the fields and growing a crop, I would say. Still number one, you have to make a crop but number two, we need to market it somehow, or get the most out of it that you can. "

The profit margin from growing commodities continues to become increasingly thin. Couple that with a marketplace that seems to be more uncertain than ever, and risk management looks less optional, and more like a fact of farming.

For Market to Market, I'm Tyler Teske.


Tags: agriculture news