Struggling with Marketing Psychology

by Heather Moffatt, Grain Risk Management Advisor, Agricultural Marketing First

The grain marketing process is an interesting one. Over the years I’ve realized some key strategies that lead to success. I’ve learned that a
successful marketer is an educated and knowledgeable marketer. These two things allow you to objectively look at the “big picture”. The big picture includes basis fundamentals, the Canadian dollar’s impact on basis, futures values and the impacts on futures fluctuations (technicals/speculators) and market carry. The following are a few rules to follow to help you be better marketers. They might sound simplistic and you might even laugh, but take these suggestions seriously. The ability to conquer these six points should be your number one priority.

Understand you cannot foresee market direction. Of course you can’t. We all wish we had a fortune teller with a crystal ball and all the right answers. Instead we study demand and supply, stocks to use numbers, long term weather patterns, fund positions etc., etc., etc., and then anticipate market direction. And even after you have studied, attended marketing outlook seminars, and diligently checked all the facts that influence market direction, some new factor arises to throw a new curve and change the market direction.

We are living in the present. You cannot change what has already happened nor foresee the future. Learn from mistakes and know you can’t predict tomorrow. The grain markets are constantly changing so be ready to implement a “contingency plan” for the volatility. Investment of time and a commitment to improve. No one is going to do it for you. You have to want to change. We have all heard smokers say, “I really should quit”, or overweight people say, “I really should take some pounds off.” They continually complain and talk about it, but do nothing. There are plenty of marketing services that will give you direction, but you need to be part of the process and make a commitment to change. Take the “Market Outlook” information and know how to use it. Corn prices look bullish? Store your corn and use put options to protect your position.

Have realistic goals and use discipline. What futures price do you want to guarantee your business every year? Do the math. If over 10 years you guaranteed yourself a $3.00 futures price for corn – annual production of 50,000 bushels x $3.00 = $150,000 x 10 years = $1,500,000. Or would you rather take $2.50 over 9 years ($1,125,000) plus $4.50 for one (if you held it that long) for a total of $1,350,000. Of course basis has to be factored in and managed on top of your futures hedge program. This is a very simplistic example, but illustrates what a strong bottom line can provide. Look at the corn chart below and calculate your target selling price. Be realistic. Aim for that level every year, knowing you may have to revise your plan as you go forward. Have a hedge program in place to cover your sales and protect values when you are not ready or able to sell. If you lack discipline, network with someone. It is extremely important they share your goals and values.

Be aware of the “big picture”. How much have you paid in storage charges over the years waiting and looking for the big rally that never came? How many times have you put grain in your bin, looked at great carry in the market 6 months in the future but not locked those prices in? Then you took the same price or less than when you put the grain in storage? Farmers get really irritated when they spend money on a call option that expires worthless. What just happened? Obviously the market traded sideways or down. Were you better off selling the grain some time ago if that were the case?

Have patience. A hedge type program is built on long-term success. Buying a call option one year that expires worthless does not constitute
participation in a hedge program. Take a calculator and look back over the years at your expenses objectively. Look closely at the points discussed above. Write them down on a piece of paper and post them by your computer. Most marketing pitfalls stem from the psychological effects of this unique environment that producers face. I can think of no other business that deals with the complexity of marketing that our producers manage. Your ability to take the emotion out of the marketing process and deal with it strictly as a business transaction is your biggest obstacle. Conquering this will put you on a path to success.