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Welcome to the home of the Modern Farm Business® podcast, hosted weekly by Dean Heffta. Modern Farm Business translates proven methods and best practices from the business arena to today's modern farm leadership environment. We'll be learning from forward-thinking experts and discovering how to apply time-tested techniques to make real improvements on the farm.

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Nov 8, 2018

THE CHALLENGES OF BUSINESS
Whether it’s manufacturing, retail, the service industry or agriculture—there is something that makes you feel like your business is tougher than others. For farmers, typically a major source of frustration is found in the grain marketing side of the business. That’s understandable because farming—and in particular the marketing aspect—work differently from most other businesses.

 

THREE BASICS OF EVERY BUSINESS: MAKE - SELL - COUNT

Make: If you’re in the widget business, the first step is to make widgets. Dry cleaners make clean clothes. Farmers make grains, produce & livestock.

Sell: The widget maker uses ads to create buzz in the marketplace, focusing on increasing the perceived value of the widgets they manufacture, This is how they create customers. This is not how commodity marketing works, where the items up for sale are considered “fungible,” meaning the market doesn’t care where it came from or who grew it—all corn fetches the same price.

  • Long-term winnings come to the most efficient producers (Outrun the slowest guy, not the bear)
  • Differences in price happen through time rather than from difference between producers (The quality of the product doesn’t change--just its perceived value)

Count: Inventory, bookkeeping, tax prep, etc.

 

SELLING: SEVEN BENEFICIAL CONTRARIAN MINDSETS

  1. Uncertainty equals opportunity: Moving markets provide uncertainty that keeps production costs down. A three-year long 20-cent trading range means the market gets very comfortable with what costs can do, but a more wildly fluctuating price, though potentially quite emotional, means opportunity to sell during peaks and added pressure to cost structure because of that uncertainty.
  2. Work on the other end of the leash: Most dog trainers will tell you their best work happens here. They can work with the dog, but what matters most to long-term behavior is tied to the owner. In farming, the two ends of the leash are marketing and efficiency. We might be tempted to focus a lot of energy on the “dog end” of the leash (the markets), but if the trainer is giving mixed signals or reinforcing bad behavior (or the farm leader is not concentrating on the efficiency of the operation) then the dog won’t behave properly for long (we’ll find we can’t market ourselves out of a spending problem).
  3. Remember the goal: Selling what we’ve raised can bring a lot of emotion into the picture—anger at pricing, regret for not having done something, paralyzed in fear due to the uncertainty—but we need to remember the purpose of marketing: to turn our production into cash. Be clear, intentional & focused.
  4. Even Tiger has a coach: Top performers have coaches to provide feedback, offer a different perspective, apply principles to fit the performer’s needs. What does a farmer need to find in a coach? A credible person you connect with and have a relationship of respect and candor. They can be professional-level coaches with expertise in market planning and implementation; they can be informal, like a friend or uncle with a real knack for insight or wisdom.
  5. Ready, steady, GO: Get clear on what to do next. “I’ll sell a good chunk when the market gets high enough” is way too vague. How much? How and where will you price it? At what level? Detail allows you to be patient and pounce when the well-defined time is right.
  6. Pass me the gravy: Commodity marketers are price takers, which can lead us into a trap of complacency and helplessness. The “gravy” is the little things that we can do to add value without adding much or any cost: growing seed, specialty traits, having access to end-users who are willing to pay more. Gravy goes right to the bottom line, and once enough gravy goes into equity it starts to make a real difference.
  7. Finish the learning loop: Don’t make a decision or take an action without viewing it as a learning opportunity. We only have about 40 chances to market our crop, and if we aren’t active learners who look for patterns, biases and ways to improve next time around—we’re doomed to relive our rookie year 40 times. Becoming comfortable with uncertainty, working on efficiency, focusing on what we really want, having good coaches, building plans and watching for opportunities--these all help with continued learning and focusing on our own development.

Note: There is significant risk of loss involved in commodity futures and options trading, and they may not be suitable for all investors.

Thanks for listening! Email me any questions or comments at dean@modernfarmbusiness.com. See you next week!