WASHINGTON - One of the keys to for farmers to thrive is a strong marketing plan.
The American Bankers Association at its recent ABA National Agricultural Bankers conference in Omaha, Neb., offered a tip sheet from its ABA Agricultural and Rural Bankers Committee that includes seven tips to help farmers and ranchers manage their risk.
"A well-developed marketing plan can take some of the price risk off the table, which is especially important in today's ag economy," said Ed Elfmann, senior vice president, agricultural and rural policy at ABA.
An ABA tip list:
• Know break-even costs. Factor in all of your costs including input, debt service and family living expenses. Take a three-year, five-year or Olympic average (eliminate the high and low of the last five years and average the rest). Check this with figures from university agricultural extension services or an advisory firm.
ADVERTISEMENT
• Act on profit opportunity. Once production costs are understood, selling at a profit-even a small one-eliminates some risk. "One of the biggest mistakes can be inaction because you think prices are going to go up or you're going to miss a rally," the tip sheet says.
• Set a goal and stick to it. Set a date to have all of your marketing completed, Plan to market 10 percent each month, or set a goal to market one, two or even three years out.
• Take emotions out of it. Find a marketing advisory firm or local co-op andor elevator to work with to help remove emotions from the mix. Talk to your banker for recommendations and understand your options.
• Keep it simple. When you do make a decision, accept it and move on. Don't beat yourself up afterward if the market moves one way or another.
• Avoid spot markets. Don't wait until you need to make a loan payment or you need cash. That makes you more vulnerable to what the market can give you at that time. Keep track of your local basis and understand the benefits of forward pricing.
• Understand marketing tools. Thoroughly understand marketing tools - hedge-to-arrive contracts, forward pricing, marketing loans to cover hedging expenses, hedging lines of credit, the role of crop insurance.
