Many of you may have already read the article by Bryce Knorr on page 30 of the April 2013 issue of Farm Futures about marketing and profitability. “The real deal” is the title and “Here’s what works in marketing to help boost your bottom line” is the subtitle.
The article quotes information from a 2012 Farm Futures survey about high-profit farms in the survey (the top 10%). Following are a few quotes from the article.
“The results demonstrated a clear connection between profitability and marketing in three key areas: when crops are sold, how they’re sold and how marketing decisions are made.”
The high-profit farms “were more likely to forward-price crops before harvest, when most years’ prices are higher.”
“High-profit farmers use a lot of different marketing tools. They’re more likely to use exchange-traded contracts, like futures and options. More than half use these products for risk management compared to about a third of all producers surveyed.”
“…. how you use the variety of tools available today for marketing is crucial to success. The high-profit farms in our survey appear to keep their own counsel. While they have brokerage accounts to trade futures and options, they don’t just rely on their brokers, paid marketing advisers or paid marketing newsletters.”
“The high-profit farms do follow technical analysis, using patterns on price charts to help guide their decisions. And they try to be more nimble in their marketing, taking short-term positions with futures and options to get price protection when it’s needed.”
All of these are excellent points. I was a bit surprised that after reporting the practices of the most successful farmers from their survey that the author chose to cast a shadow over selective hedging by saying that “This so-called “selective hedging” can cause problems, ranging from over-trading to outright speculation.” He points out that discipline is important, and I agree. Certainly, any use of futures markets can lead to speculation, but I am quite confident that farmers who have the discipline to develop and follow a quantitative technical analysis approach to price risk management can clearly distinguish between hedging and speculation.
I am sure the author had good reasons for throwing a shadow over selective hedging after their survey documented it is what is working, but the logic escapes me.
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Posted by Keith D. Rogers on 7 May 2013.