Do I Need a Marketing Advisory Service?

Heather Moffit, Grain Risk Management Advisor, Agricultural Marketing First

With the Canadian dollar strengthening over the last two years, cash prices for grain in Ontario have continued to decrease. Historical price targets have had to be adjusted. As well, input costs have also increased over the same time frame. Grain producers have taken a second look at how they market their crops. Margins are slim; hence the need to revisit the farm business plans to see how pennies can be "pinched" and pricing potential maximized.

How you market your commodity determines your yearly gross income. Failure to market aggressively leads to tighter margins and can cripple a farm operation. Addressing the need for change comes first. Depending on your degree of knowledge, venturing into unknown territory of the grain markets creates a need for expertise. The biggest challenge encompasses embracing change, obtaining knowledge and creating the discipline needed to succeed. This new wave towards more aggressive grain marketing starts with assessing varying degrees of assistance. A careful study needs to be done to address how much and what kind of help you need. An abundance of services are available from daily news wires which can give you basic information and perhaps some strategy recommendations, all the way to full service advisors who work with you on a constant basis to manage price risk.

The following are some things to consider in your quest for help. If you are new to grain pricing alternatives, do you need someone who will assist you during the learning process? If you are looking for an advisory service that will eliminate your need to study and understand grain or livestock marketing, you are in for disappointment. Be realistic with your expectations.

Non-advisory Information Services
These services would include a variety of market news information without hedging recommendations. Farm based websites and University extension services and newsletter subscriptions are popular means for obtaining this information. Farmers who are skilled marketers, able to process the sometimes conflicting information, and make sound decisions will find this information valuable. A wide variety of opinions and interpretation surrounding statistical data can be found daily. It's important to be disciplined enough to sort through all this material and keep to your plan.

Types of Marketing Advisory Services Available
Marketing advisory services vary from large firms who deal with producers all over Canada and the U.S. to smaller, localized companies. Costs will vary depending on the degree of service provided. Most firms will offer weekly and/or monthly newsletters and specific marketing suggestions, goals and targets. Be careful to distinguish between services offering speculative buy and sell strategies and farmer producer hedge programs. In addition to newsletters, "hotline" numbers are available for pre recorded nightly or weekly summaries. Some also offer a "call in" service to discuss specific marketing questions. Many also offer seminars throughout the year focusing on hedging education or market situation and outlook. Fees are often charged for these seminars in addition to a yearly subscription fee.

Performance of Advisory Services
Many larger marketing advisory services performance can be compared through independent analysis. The University of Illinois, AGMAS, complies data yearly to compare various U.S. firms. Their analysis can be found at http://www.farmdoc.uiuc.edu/agmas/reports/05_02/AgMAS05_02.html. You will notice that each firm can fall into various categories based on the focus of their recommendations (cash, option/futures or hedge programs). It should also be recognized that the past record of an advisory service doesn't necessarily predict future performance.

Using Advisory Service Recommendations
Typically, advisory services will offer standard recommendations for their clientele. These recommendations tend to fit the "average'' or "typical" producer. Your personal level of coverage may differ depending on whether you participate in a diversified cash only program or protect values with a futures and options hedge program. As well, timing of grain sales - flexibility of storing grain or necessity to take it to a country elevator, needs to be factored in. Are you looking for an advisory service that works specifically with you and your particular operation?

Farm marketing services vary widely.
All can offer value to your farm operation, but you have to assess the degree of assistance necessary. You might be someone who is seeking solid information on which to base your decisions. If your grain marketing knowledge is lacking, a more comprehensive service might be where you need to start. Your marketing advisor should share the same philosophies about marketing and risk management that you do to create a strong, solid working relationship. Predicting market direction is impossible. Looking for a service that states that they can foresee future grain price movement should be met with skepticism. Ask numerous questions of the firm's representative to decide if they and their service fit your needs and expectations. Compare costs and value for services provided. Every producer will vary in his needs and expectations. Remember that an advisory service's roll is to "advise". They bring forward information, suggestions and strategies, and assist you in the decision-making and disciplinary process. Seek the necessary assistance that will enhance your farm operation and complement your current marketing skills.