chapter3-PriceRisk-Module2

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Published on January 7, 2009

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Developing and ImplementingA Marketing Plan : Developing and ImplementingA Marketing Plan Paul E. Patterson and Larry D. Makus University of Idaho Department of Agricultural Economics & Rural Sociology Agriculture Faces Many Types of Uncertainty & Risk : Agriculture Faces Many Types of Uncertainty & Risk Uncertainty makes planning difficult Uncertainty also makes planning essential Planning changes reactive to proactive Commodity prices are a major source of uncertainty (price risk) A marketing plan helps manage but does not eliminate price risk Production as Science : Production as Science Production is based on: biological sciences physical sciences Results are viewed as “predictable” fertilizer application and yield response pesticide application and control variety traits and characteristics Marketing as Science : Marketing as Science Marketing is viewed as an inexact science Marketing is based on social sciences economics psychology Results are probabilistic, not predictable Typically don’t have recommended marketing practices Marketing may be frustrating, but is crucial to success Marketing Is A Complex Activity : Marketing Is A Complex Activity Marketing is more than “selling” a commodity Marketing should begin before you plant, not after you harvest (year around) Production & marketing are integrated No single best marketing strategy exists: varies over time, location, commodity, financial situation, etc. A Marketing Plan Is Necessary, But Not Sufficient : A Marketing Plan Is Necessary, But Not Sufficient What else? A farm plan: goals: short term and long term objectives: quantifiable with a time frame Financial statements: know your financial situation:risk bearing capacity, cash flow needs where you are today and where you are going Customize Marketing Plan : Customize Marketing Plan A marketing plan works only if it fits your operation, your goals, your objectives and your financial situation Purpose Of Marketing Plan: : Purpose Of Marketing Plan: Reduces pressures which can result in selling at a “bad time” help establish price targets: compatible with market conditions compatible with financial situation Identify times when market is offering an “acceptable” price Tool to help manage price risk Marketing Plan Prerequisites : Marketing Plan Prerequisites Know your cost of production Understand the market: historical current Form price expectations Develop market price objectives Understand marketing alternatives A willingness to follow plan Marketing Plan Defined : Marketing Plan Defined A course of action which allows a producer to sell a commodity at a time that offers an acceptable profit potential A process to assist in choosing between various methods of marketing a product A Marketing Plan Should Answer Four Questions : A Marketing Plan Should Answer Four Questions When to sell? Where to sell? What to sell? How to sell? Time of year Location Product form Compare alternatives Essential Elements In Developing A Marketing Plan : Essential Elements In Developing A Marketing Plan Outlook what’s going to happen? Marketing alternatives which alternatives are viable? A marketing strategy what am I going to do? Disciplined marketing management following the plan! Market Outlook Using Fundamentals : Market Outlook Using Fundamentals Market fundamentals: supply & demand Balance sheet approach: beginning stocks + production - utilization = ending stocks Look at changes as well as absolute levels Market Outlook Using Technical Analysis (Charting) : Market Outlook Using Technical Analysis (Charting) Charts give picture of past price behavior Charting forces you to follow the market regularly Charting helps you identify market direction market trends market cycles Marketing Alternatives : Marketing Alternatives Open (spot) cash market Pre-season contracts Forward cash sales Consignment Basis contracts Futures contracts Government programs Marketing Alternatives : Marketing Alternatives Factors to consider: method of delivery place of delivery time of delivery cost of using pricing mechanism payment schedule contingencies Marketing Alternatives : Marketing Alternatives Advantages/Disadvantages: risk cash flow market access price level marketing cost (including time) flexibility negotiating power Developing A Marketing Strategy : Developing A Marketing Strategy Set objectives Define how to meet objectives Establish decision rules fixed vs. flexible sales time-limited vs. open-ended fail-safe vs. default Developing A Marketing Strategy (cont.) : Developing A Marketing Strategy (cont.) Test the strategy evaluate “what ifs” forecast the end result refine Establish criteria for changing strategy establish a contingency plan avoid “second guessing” trap Clearly define decision making responsibilities Marketing Management : Marketing Management Implement, Follow and Evaluate plan! Remember: discipline is important good planning improves the chance of success good decisions sometimes have bad outcomes evaluate decisions relative to objectives no one goes broke making a small profit your marketing plan must fit your operation

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