Are You Doing The Best Job Possible With Marketing, Or Could You Use Help?

Grain prices are higher than you ever imagined when you began farming. How can you go wrong with $5 corn and $13 soybeans? But should you wait for higher prices? Did you sell when soybeans were pushing toward $15? Was your corn unloaded in the $3 range? Are you still holding your entire old crop and wondering how to manage the price risk of the new crop? Would a marketing advisory service help you sleep better at night?

The past several years have taken us from picking the low points in the market and claiming loan deficiency payments to trying to find the highs in a fairytale marketing scenario where everyone lives happily ever after. Extension economist Bob Wisner at Iowa State University wonders aloud if you need a marketing advisory service. Being in a highly volatile price environment is a challenge for the best market watchers, but you have to be concerned about the financial health and profitability of your farming operation. All of the time demands on your management allow little chance to manage your marketing risk.

Wisner suggests your average your grain sales over the past several years, and compare that to your state average, which is available from USDA. Any shortfall on your part could mean the need for some help with marketing. Some farmers can make their own improvements if extra time was available, but others would benefit from the assistance of an advisory service.

But that is not a step made lightly. Clients of advisory services need a good marketing background and familiarity with cash and futures markets and the tools that are used. Since many of the services use buy and sell signals, a client should have some knowledge of commodity price charts. And the client must be prepared to act on a moments notice.

The advisory service can help accumulate information that provides an advantage, but will not sell your crops for you and should not be expected to hit the market highs year in and year out. Their objective is to recommend sales above the market averages and at prices that will be profitable.

What should you expect from an advisory service?
1) You will probably receive a weekly newsletter with charts and advice that might be separated for cash only farmers, conservative hedgers, and advanced hedgers and option users.
2) Newsletters may have significant information about chart patterns, technical analysis, and a wide range of tools that describe price action. Such information may also contain details on market fundamentals such as supply and demand.
3) Some services provide telephone or e-mail information and allow clients to speak with advisors on a limited schedule.
4) Some services will also hold seminars around the Cornbelt that provide more intense information and educational sessions on the use of marketing tools.
5) For a higher fee, the service may take over your marketing, and manage your sales with your local elevator and even manage a futures trading account in your name. That service comes at a much higher cost, but also requires monitoring by the client who needs to remain comfortable with such an arrangement.

The promotional material of the marketing advisory services indicates that each is the tops in the business, but you need to be able to judge one from the other. Their performance was rated for many years by the University of Illinois. The University of Illinois ratings were based on a benchmark system, and compared the net prices received by the service to the benchmark.

Each service will have recommendations that are in the top tier and in the bottom tier, as well as recommendations over time that are quite average. If it seems difficult looking at a list of equals and picking one out, the one that should be picked is the service that uses marketing tools that seem comfortable to use. Wisner says one should also remember that past performance is not always a good indicator of future results. Market volatility, upward trends, and other dynamics created unanticipated events that might throw off even the best market advisors.

Wisner offers a word of caution; saying that advisory services create their recommendations for an “average” client, and your needs may be much different than their average client, such as volume of grain marketed and risk aversion. Check with neighbors for their experience with such services and extend your inquiry to elevator managers, Extension advisors, and your lender. Search for information about ones that rise to the top of your list and ask for some sample of their newsletters to see if their style matches your style. Costs can also vary widely, but should be competitive with other services that provide the same level of service. Your decision should not be based solely on cost. Keep in mind that not every farmer needs an advisory service, and are able to create and implement a marketing plan that would surpass the recommendations of the best advisory services.

Summary:
Market advisory services may be a source of information to improve grain marketing in an atmosphere of market volatility and complexity which challenge even the best marketers. Such services will vary widely in what they provide, their style of marketing, and in their cost. A subscriber should find a service that matches his or her style of marketing as closely as possible and provides the amount of information that is desired.