How to market in a margin-based world - Farm Progress Issueкод для вставки
56 www.MissouriRuralist.com - March 2009 MARKETING How to market in a margin-based world By ARLAN SUDERMAN Key Points T в– Wide price swings likely will remain with us through 2009. в– Changing input costs make grain marketing decisions difficult. в– Grain pricing and input contracts need to be based on profit margins. HE вЂњrules of the gameвЂќ вЂ” the parameters that define how the markets function вЂ” are changing with increasing frequency, making pricing decisions difficult at best. The вЂњrulesвЂќ changed in 2006 when Wall Street began courting ChicagoвЂ™s La Salle Street, and they changed again in late 2008 when several of our nationвЂ™s most trusted Wall Street institutions collapsed. Prices that had risen to astronomical levels by the summer of 2008 quickly collapsed in fear and panic as investors speedily reclaimed what was left of their funds. Much of that money should eventually return to the commodity markets, but investors will be more intentional in their decisions and quicker to exit on the first sign of trouble, as long as economic uncertainty reigns on Wall Street. That translates into continued volatility, creating wide price swings that leave the typical producer wondering if supplyand-demand principles will ever drive the market again. Prices will continue to be a function of supply and demand over the long term, but price movement also will continue to be modified by the money flow from Wall Street. That money flow first created a strong tailwind that took prices well above levels justified by supply and demand, but then it reversed to create a strong headwind that pushed prices below justifiable levels by the end of the year. Unfortunately, those dynamics, created by wildly swinging investor emotions, likely will remain a driving force through much of 2009 as well. Focus on a profit margin Marketing decisions are amplified by similar swings in input costs. Anhydrous ammonia fertilizer prices rose well above $1,000 per ton in the Midwest last summer, only to fall below $300 per ton in a few select markets by December. Other input costs rode a similar roller coaster, or simply pushed to record highs and remained there. Commodity prices that once looked profitable no longer covered the cost of production. As such, these changing dynamics have altered the way marketing must be approached. No longer can one afford to merely lock in prices for grain when theyвЂ™re perceived as good, nor contract for input costs before revenues are known on the other side of the ledger. TodayвЂ™s producer must examine both sides simultaneously, looking for opportunities to lock in both input costs and grain prices at the same time, when the combination allows him or her to lock in an acceptable profit margin. Good records are essential ItвЂ™s green. 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