Farm Management Minute: Marketing plan…what marketing plan?
Mitchell Technical Institute
During a recent conversation with a farmer, we discussed the 2015 outlook and both came to the conclusion that it will not be a very good year, from a financial perspective. Some may call me a pessimist, but I prefer to be called a realist and I would gladly be proven wrong because it is not front page news that cash flows will be tight, and if you have already passed up the opportunity to lock in a profit, you may have to shift your focus to minimizing losses. Some projections are showing over $100 per acre loss; quantify this by 1,000 or 2,000 acres on your farm; that turns into a lot of money!
If you have unpriced 2014 grain, you know exactly what it cost you to produce it. Knowing these numbers, you can easily determine your breakeven price. If you have not done this yet, DO IT! Once you know the breakeven, you need to create a plan of how, when, and where you plan to sell and this plan will correlate with your 2015 cash flow projection and the two should be used together to determine when and how much cash will be generated for purchases and payments.
You just marketed your 2014 crop! Now, you need to do the same for 2015. Though you have not turned a wheel in the field yet, you can calculate almost to the penny what your cost per acre will be in 2015. Many of you have already paid for or committed to all of your crop inputs for the year, but have you sold any 2015 grain? If not, you need to start NOW! By using a conservative estimate for your 2015 production (using Trend Adjusted APH for example), you can divide your input costs by this number and come up with an estimated breakeven per bushel. With this number established, you can begin marketing your 2015 bushels.
How about market livestock, have you protected them? If you did nothing to protect your 2014 calf crop and plan to sell them soon, you have likely lost over $25 per CWT or over $200 on an 800 lb calf in the past 8 weeks. If you sell 100 calves, that is over $20,000. This all could have been protected for a very low cost. There are mechanisms in place to use futures contracts to lock in a price or options to put a floor underneath your livestock.
This is your business and in order to be successful, you NEED to have a risk management plan in place to protect your income! You need to understand the marketing tools at your disposal and make a plan. At the South Dakota Center for Farm/Ranch Management we have instructors who will work with you on not only your risk management plan, but can assist with helping you manage all financial aspects of your operation. For more information, contact us at 605-995-3098 or http://www.sdcfrm.com.
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