Lessons and Learning
After 25 years of successfully running TEPAP, The Executive Program for Agricultural Producers and a management and strategy bootcamp for farming operations, Danny Klinefelter of Texas A&M composed a list of the top things he learned from the farmers he helped educate.
Among his top observations was the importance of communication.
In quoting renowned management consultant Peter Drucker, who believed 60 percent of all management problems are communication problems, Klinefelter says communication problems stem from several common behaviors: secrecy, inability to admit being wrong, dictatorship, unresolved conflict and unfair fighting. To solve these problems, Klinefelter says employees and family members must meet regularly to create a clear understanding of expectations, responsibilities, direction and execution plan by everyone.
At Brock & Associates, we have similarly witnessed in working with farmers that the most successful marketers constantly clarify their execution plan. Marketing is a game of making high impact decisions with limited information. The frustration most Illinois soybean producers feel toward their marketing is understandable. Trade wars, USDA response programs and record planting delays have created impossibly satisfying soybean basis levels and introduced levels of complexity and uncertainty that make the most volatile historical weather markets look elementary by comparison.
Making marketing decisions is what we do in the advisory business. We analyze data, study market factors and distribute market intelligence and recommendations we believe producers can leverage to manage price risk and enhance their bottom lines. We dig deep into market reports to assess present impacts and future influences on crop prices. We turn information into decisions.
But more information does not necessarily mean better decisions. Plenty of studies reveal decision makers more often use additional information to reinforce and entrench previously held positions rather than as a tool to reevaluate. We believe keeping an open mind is at least as important as the information itself.
Rather than launch into a cliché list of the benefits of a written marketing plan, better use of this space is to note the communication hallmarks of the best managers and marketers are the very definition of a marketing plan. We define it as a specific plan of action that communicates what your pricing goals are and how you will make the decisions to meet them.
Most of the time what we farmers think we need is better information, such as the most accurate weather, yield or USDA report forecast. The reality is, we need to decide what we are going to do despite the accuracy of intel we interpret. Klinefelter also cites that the main difference between the top 10 percent of farm organizations and the rest of the top 25 percent is timing. The only way to pull off timing to your advantage in marketing a crop is to try and define decisions ahead of time, making them as systematic as possible. The time a market spends at a favorable price sometimes only last minutes.
It’s easier to illustrate the importance of timing in other areas of farming, like fieldwork. Almost every producer learned from their predecessor the command performance often required to plant a crop, and Illinois farmers are as good at it as any. USDA reported that from May 26 to June 2, Illinois planted 1.12 million acres of corn over two working field days. That translates to 23,333 acres per hour, an impressive achievement that bested fellow troubled planting states Indiana and Ohio.
The best odds of capitalizing on the most marketing opportunities over time comes from having planned for them ahead of time. The market moves too quickly and the emotional element is too dominant a presence to just watch the market closely and defer the decision. Deciding later or deciding not to decide just aren’t acceptable steps to sell a crop. If you decide today you do not want to sell at the current price, that’s fine. But you must decide today at what price you will sell. The decision won’t get any easier.
When USDA released its March 1 Grain Stocks Report, we noticed Illinois soybean producers still had 70 percent of the 2018 crop in storage. For reference, Iowa and Minnesota had 74 percent and 69 percent respectively. Although a portion of Illinois soybeans in inventory on March 1 was sold on forward contracts and the 70 percent doesn’t reflect that, USDA data show the undersold soybean farmer is prevalent and the magnitude is staggering. Our analysis was these three states were carrying too much of last year’s crop at the halfway point of the marketing year and most likely still do.
At the time, we advised producers to be about 70 percent priced, depending on whether they are strict cash marketers or hedgers. We recognize producers have likely done some catching up since March 1.
This isn’t an attempt to highlight what sales should have been made. Second guessing the past is a delusional luxury left for those in politics. There comes a point in marketing where the confidence destruction of hindsight wisdom just begets further decision paralysis. It is, however, worth noting that Klinefelter also observes most successful businesses are “learning organizations.” Dissecting former marketing decisions or lack thereof is undoubtedly important if you stand a chance at improvement.
Besides the key lesson that changes in price alone do not make marketing decisions easier, another is that the greatest mistakes in marketing are quantity, not price related. Establishing criteria to guide how much to market goes a long way toward avoiding mistakes. For instance, selling no more than 20 percent in a single day, no more than 10 percent with “double up” premium contracts, no more than 20 percent in pools or no less than 5 percent in any given day are a few examples. Combined with goals of having a certain percent sold at planting, at harvest or at other dates, helps decisions fall out of the marketing plan.
Finally, evaluate your performance and learn from both successes and failures. Being able to recognize when you were just plain lucky or when you did all the right things but still had poor results are harder to recognize than bonehead plays or those times where good decision making matched the result. Be honest with yourself, throw out the bad and keep the good when formulating the next plan.