Farmers polish marketing skills

The classroom this day for about 20 southern Minnesota farmers is the clubhouse of a hunting preserve near the town of Lakefield. The teachers are a couple of farm experts from the University of Minnesota.

"OK, let's get started," says Ed Usset.

The University's Ed Usset begins the session on a somber note. He says the economic downturn has hurt everyone, including farmers. Grain prices followed oil and other commodities down, current prices are half what they were last summer. Usset tells the group the days of easy profits on the farm are probably over.

"I sure hope we see seven dollar corn again, but I don't want you to hold your breath, doesn't feel like that's coming back anytime soon." says Usset.

Usset says farmers can eke out a few more bucks from their crops with smart marketing. Those marketing tools have names like futures contracts, puts, calls and hedges. At their simplest, Usset says the tools let farmers lock in a price now even though they haven't begun planting yet.

"It's not a bad thing to know the price you're going to have at harvest," says Usset.

This kind of arrangement is designed to tame what may be the most powerful force in any market; uncertainty. No one knows if grain prices will be higher or lower next fall than they are now. That's the incentive for buyers and sellers to take out a kind of joint insurance policy; a grain contract. To get the farmer on board, the buyer offers a price higher than the current market. The farmer gets guaranteed revenue, the buyer, guaranteed supply. During a break in the workshop, southern Minnesota farmer Jeremy Michelson says making these sorts of marketing moves could help a farmer make an extra ten or 15 cents a bushel. That may not sound like much, but ...

"That could be the difference between making money and not having a profit this year," says Michelson.

"That could be the difference between making money and not having a profit this year."

Michelson says not only have grain prices fallen, it's getting more expensive to put a crop in the ground. The cost of fertilizer, land and seed all have gone up in recent years.

"Yea, if things don't change we could definitely be planting the crop at a slight loss at this point the way it looks," says Michelson.

Back in class, the University of Minnesota's Ed Usset leads the group through a marketing exercise. Seated nearby is his cohort from the university, Bob Craven. In this exercise, Craven plays a grain broker, Usset the farmer. They make the point that the price of certainty isn't cheap, and the futures game isn't for the financially faint of heart.

"You need to send me a check, Ed. As your broker I need $10,000 worth of margin money," says Craven.

"Bob, I've got to run," says Usset.

Toward the end of the class both the instructors and the students take a stab at making some sales, using a variety of marketing tools. Instructor Usset isn't too happy when his broker tells him how some of his choices turned out.

"You're kind of depressing me, Bob," says Usset.

The sales Usset made in the exercise were based on actual market prices from 1996, so the prices are low compared to today. Usset ending up averaging $2.64 a bushel for the 100,000 bushels of corn he sold. Farmer Jeremy Michelson did a little better.

"I had $2.81," says Michelson.

Michelson says he intends to use some of the trading advice he learned in this class when it comes time to sell grain.

"Anytime you have slim margins in any business it makes you work harder both at expenses and possible revenue," says Michelson. "So I think now people are going to start paying more attention to their marketing plans again, to try and at least maintain some kind of a profit margin."

He says in a tight economy, farmers are going to need to use every management trick they know to make money.

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide