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Saturday, March 6, 2010

Marketing Risks

Continuing our Risk Management discussion, I want to comment on Marketing Risks. Marketing is the part of farming operations that transforms productions activities into financial success. Often unexpected circumstances, like weather or government action, can impact major changes in crop and livestock prices. With agriculture becoming an ever growing global market, these changes can come from world factors – other farmers’ weather and other countries’ governments can affect your prices.

Marketing plans and strategies should be developed with your operation in mind. Keep these items in mind as you develop your plan:

Know the level of risk you are comfortable with. Marketing is not an exact science, so you must understand your level of risk tolerance and have a strong understanding of your current financial position.

Be willing to learn; you may need help developing your marketing plan. Find a reputable futures broker, elevator operator, financial planner or farm consultant.

Develop an integrated management approach to your business. Farm business decisions should be made taking every aspect of the operation into account: production, financial, legal and human resources. Marketing decisions often involve contract agreements that can significantly affect financial plans.

To manage your marketing risk you need a marketing plan. The goals and objectives of your operation should drive the marketing plan. Understand production costs, know your break-even price, develop targets for your plan by analyzing supply and demand projections, be aware of prices received in your area in previous years and know your cash flow requirements – including family living needs.

It is important to remember that the numbers and plan that works for your neighbor may not be the most appropriate plan for you. Know your goals and know your needs. And be ready!

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