MARKETING PLANNING FOR PROFIT Agriculture is becoming more

MARKETING: PLANNING FOR PROFIT Agriculture is becoming more market driven and less production driven 1

SELLING VS MARKETING • Selling - the physical act of moving goods off the farm/ranch to the buyer • Marketing - involves producing what is demanded and pricing that production in terms advantageous to the producer • Market defined: whenever buyers and sellers are able to agree on terms under what the sale or trade of products and services can be completed 2

HISTORY OF THE FOOD CHAIN • 100 years ago people canned, dried slaughtered and milled their own products • Producers helped each other and shared equipment, labor and even a cup of sugar • Specialization and decentralization took over • Now we may have to centralize our system to be competitive - cooperative effort in local community is a must 3

TYPICAL STEPS IN MARKETING A BEEF CALF • • • Rancher sells to backgrounder Backgrounder sells to feedlot Feedlot sells to packer Packer may sell to wholesaler or retailer Wholesaler sells to the food stores Retail store sells to consumer 4

UTILITY: adds usefulness • Form Utility - slaughter, slice, dice, chill, freeze, dehydrate, pickle, can, grade, and prepare foods (to name a few) • Time Utility - transportation • Place Utility - storage Ex. - C A storage 5

DIFFERENTIATED PRODUCTS • Branded products - Sterling Beef, Certified Angus, Heinz, Generic • Organic and or Natural • Prepared Foods: - Fully or partially baked or cooked - Uncooked but marinated, seasoned and packaged with vegetables and cooking directions 6

CASH MARKETING 7

CASH MARKETS Grain and Hay • Sell at harvest to: feedlot, dairy, elevator or another producer • Store and sell at a future date • Forward price: sell at harvest or sell at a future date • Commodity could be delivered at harvest for pricing and payment at a later date 8

CASH MARKETS Livestock • Sell at auction barn • Sell direct to feedlot/backgrounder • Sell via video to feedlot /backgrounder • Sell direct to the consumer 9

CASH MARKET Fruit, Honey, Vegetables etc. • • • Roadside stand You pick (except honey) Packing shed/processor Retail store Community Supported Agriculture (CSA) House to house 10

OTHER CASH MARKETS • Internet sales • Direct mail • Catalog • Telephone • T. V. shopping channels * Direct sales are the fastest growth sector in production agriculture marketing's 11

FUTURES AND OPTIONS CME CBOT 12

HEDGING WITH FUTURES • Hedge a sale or purchase using futures contracts • Establishes a price (assuming basis remains constant) • Requires a margin (performance bond) deposit • If you sell, you are short the market • If you buy, you are long the market 13

HEDGING WITH OPTIONS • Provides price protection like the futures but lets you benefit from and up market if selling or a down market if buying • Put - the right to sell an underlying futures • Call - the right to buy an underlying futures • Premium is paid for the above rights 14

OTHER OPTION STRATEGIES • Sell puts or calls - used when you want to re-own your commodity and you expect the prices to track sideways • Fifteen other option strategies such as strangles, straddles, butterflies, spreads etc. 15

OTHER MARKETING OPTIONS • Cooperatives are designed so you buy inputs at or near cost and sell commodities at higher prices (any profits are returned as patronage dividends) • Closed Cooperatives have limited participants which give the members more control and permit quicker changes 16

MARKETING GRAIN AND HAY near market price highs • Research the market - keep current on marketing alternatives - know potential yields and acres - what is the projected demand usage - know seasonal highs and lows - know exports and imports - watch influence of weather - keep abreast of government programs Reports 17

MARKETING LIVESTOCK near price highs • Know seasonal patterns - cattle prices often highest in late spring and summer • Back ground feeders for several months • Retain ownership - put feeders into a feedlot • Use USDA production reports • Make decisions based on as many factors as possible 18

MARKET INFORMATION • Newspaper, radio and T. V. • Internet for USDA reports and delayed futures and options quotes • Cash auction barn prices 19

PLANNING FOR PROFITS • Develop new niche markets • Partial or complete processing, transporting or storing • Build customer loyalty • Utilize university marketing programs • Setup incubator programs - commercial kitchen 20

continued • Make a market plan or use an advisory service • Make market decisions - strike a balance between risks and potential price gains. Risk varies by producer • Don’t get caught having to sell during the “John Deere/New Holland” bounce!!! 21

PREM IUMS PAID FOR NICHE CORN PRODUCTS IN IOWA • • • Food grade - 7 to 12 cents High oil - 5 to 6 cents High starch - 7 to 12 cents Waxy - 10 to 12 cents White - 20 to 47 cents Non-GMO - 3 to 12 cents 22

CONSUMER AS KING OF THE FOOD SYSTEM • Right or wrong, sciences savvy or not consumers dictate what farmers raise • In the past manufacturers ended up with product that had to be sold on promotions • Now manufacturers know immediately what consumers are purchasing. The bar code at the counter gives manufacturers instant information and they adjust production accordingly 23

continued • Farmers and ranchers need to establish relationships with manufacturers and adjust or change production accordingly. Many producers will grow commodities under contract. We should GROW what the consumer buys. • Producers need to know buying habits of the consumer - ethnic foods, geriatric peoples needs, single servings etc. 24

continued • Later in 2000 the Universal Code Council (UCC) will launch a net site called “UCC. net” The UCC manages the black and white bar code. This net address will provide agricultural producers with information on new products, promotional opportunities and an avenue to buy and sell products electronically 25

CONSUMERS COMMENTS ABOUT FOOD PRODUCTS • • I want less fat I want lots of choices It must be fresh I’m bored, give me something new I am too busy to cook I want to shop on-line I want organic and or natural foods 26

CONSUMERS SURVEY - 1998 • • Purchased food free of pesticides 19. 5% Purchased natural food 35. 7% Purchased organic food 23. 0% Refused to buy food thought unsafe 33. 1% Shopped at health/natural food store 18. 5% Refused substandard quality food 53. 1% None of the above 26. 5% 27

ORGANIC FOODS • Demand increasing domestically & abroad • New standards announced March 2000 • Organic Farming - is it for me? 28

ORGANIC STANDARDS • Standards added week of March 1, 2000 -no irradiation - no sewage sludge - no genetically modified products - limited additives - regulate use of synthetic chemicals and fertilizers 29

ORGANIC CROPS by Acre – – – – – Idaho 107, 955 California 96, 851 North Dakota - 88, 581 Montana 59, 362 Minnesota 56, 275 Wisconsin 41, 245 Colorado 35, 127 Iowa 34, 276 Florida 32, 104 – Nebraska - 28, 104 April 2000 30

COMMUNITY SUPPORTED AGRICULTURE • Members buy shares in early spring to meet the farmer’s operating expenses • Producer distributes produce to members during the growing season • If crop failure, all share in the loss • In some cases the consumer may barter for produce in change for his labor • Often natural or organic - definitely locally 31 grown CSA

ALTERNATIVE MARKETING IDEAS • Direct marketing of meat - beef, deer, elk • Self cut Christmas tree • Farmer’s market • Goat milk & meat • Green house tomatoes • Mushrooms • On-farm bakery • • Wild flowers Gourmet foods Fee hunting Bread and breakfast • Dairy products - whole milk - cream - ice cream - cheese curds - seasonal - egg nog 32

continued • • Ethnic cuisine Senior foods - functional and healthy Ethanol - MTBE to be outlawed in Colorado Produce and grocery delivery Alfalfa pellets for livestock Hogs raised on pasture Agricultural tourism 33

SUMMARY Maybe we don’t have to be part of the 66% who market their commodities in the lower third of the price range!!! 34