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Making Good Marketing Decisions - And How to Do It - Rex Zenger

Rex Zenger, Zenger Management, Inc.

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Making Good Marketing Decisions - And How to Do It - Rex Zenger

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  3. 3. Zenger Management Nothing new under the sun . . . “Everyone is having a hard time making ends meet. Taxes are coming down, but not in line with what we receive from our products. Automobiles, tractors, radios, phones, and etc. are too much of a luxury for 15¢ corn and 25¢ wheat when these crops have to be produced with machinery costing new as much as it did in high prices for farm products.” Lyle Fraser December 31, 1932, Morrowville, Kansas.
  4. 4. Zenger Management Not a commodity broker Not a grain merchant Personal consultant The Farmer’s Advocate
  5. 5. Zenger Management Philosophy “Production is king.” Have a business purpose Focus on profitability Make an informed decision Do what you enjoy . . . farm
  6. 6. Zenger Management Philosophy Don’t base decisions on fear, greed or pride. Don’t listen to radio jocks, snake oil brokers, coffee shop gossips, or grain merchants. They have ulterior motives— many will intentionally lie.
  7. 7. Zenger Management Philosophy Do base decisions on reality, profitability, and humility. Do respect family and business responsibilities. Do consider seasonals, technicals, fundamentals, and your commonsense.
  8. 8. Zenger Management A bad decision breeds another bad decision.
  9. 9. Zenger Management An informed decision is “good” regardless of the outcome.
  10. 10. Zenger Management • Profit margin • Cash flow needs • Labor and equipment logistics • Price outlook Marketing Decision Factors
  11. 11. Zenger Management How do you stop a runaway horse?
  12. 12. Zenger Management How do you stop a runaway horse? Bet on him!
  13. 13. Zenger Management Weather Acres Demand Government Perception Outside Money We cannot predict the market! 80% Strategy 20% Outlook
  14. 14. Zenger Management Yoda says, “The future, predict we cannot!”
  15. 15. Zenger Management “In a dark place we are, probabilities give light!”
  16. 16. Zenger Management Price Outlook Probabilities  Fundamentals --Grain stocks --Demand forecast --Weather
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  20. 20. Zenger Management Global grain stocks-to-use flat despite record production. Consumption is increasing due to rising standards of living and because grain is “cheap”.
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  25. 25. Zenger Management Price Outlook Probabilities  Fundamentals  Historical Seasonals --Identify “selling seasons” --Sell incrementally
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  30. 30. Zenger Management Price Outlook Probabilities  Fundamentals  Seasonals  Technical indicators --Chart signals --Keep simple --Identify short-term targets
  31. 31. Zenger Management Keep technical study simple. Technical indicators work because so many use them—a self-fulfilling prophesy. - - -
  32. 32. Zenger Management Weekly charts show long-term trends and help develop realistic expectations.
  33. 33. Zenger Management Price Outlook Probabilities  Fundamentals  Seasonals  Technical indicators  Money Flow --Speculative funds --Index funds --Sell the ”Fund Run”
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  37. 37. Zenger Management Create a personal marketing plan. Create it during the winter when there is time to think and emotions are low. Decide ahead how much to sell to who, to deliver when, and with what kind of contract.
  38. 38. Zenger Management NEW CROP MARKET PLAN for CORN 2016/17 Client: Farmer J. Example Draft #1 Date: 2-Mar-16 0 FSA Total Per Acre Planted Acres (your share) 1500.0 A Cash Flow Breakeven Price: $3.75 Projected Yield 173 Bu Policy RP2 Unit Crop Breakeven Revenue : $975,000 $650 Total Production Anticipated 260,000 Bu Coverage Rate 75% Cash Revenue Goal: $1,105,000 $737 Farm Storage Available 175,000 Bu APH 173 Cash Revenue Goal Price: $4.25 % to Farm Store 67% Guaranteed Bu. 194,625 Acres Yield Share Production "Must Sell" Bushels 85,000 Bu Base Price $3.85 Irrigated 1,000.0 200.0 100% 200,000 % to Hedge or Contract Guaranteed Reven $749,306 Irrigated 0.0 0.0 100% 0 % to Protect w/ Call Options Hail Insurance Dry 500.0 120.0 100% 60,000 % to Protect w/ Put Options Share Bu.: 260,000 Share Acres: 1,500.0 Dry 0.0 0.0 100% 0 Total Bu.: 260,000 Total Acres: 1,500.0 Dry 0.0 0.0 100% 0 Time Period Location % Bushels Contract Coverage Dec. T arget 1. February-March Farmer's Coop 10% 25,000 Har del 10% $4.10 2. March Crete Mills 10% 25,000 Har hta 19% 3. April Adams Ethanol 10% 25,000 Har hta 29% 4. May CBOT 10% 25,000 Put/Call spd 38% 5. June CBOT 10% 25,000 Dec hedge 48% 6. June-July CBOT 10% 25,000 Dec hedge 58% 7. When the market 19% 50,000 Dec Puts 77% $4.30 8. rallies 19% 50,000 Dec Puts 96% Not pre-sold: 110,000 58% 150,000 96% 250,000 Date Offered Contracts Strike Month Premium Futures Floor A. 10 $4.00 Dec ($0.20) $3.80 B. 10 $4.20 Dec ($0.20) $4.00 C. D. E. F. G. H. New Crop Marketing Plan Market Notes Tool Complete at $4.10 or in March. If spec funds cover shorts--probably price 30% to 40% Be 20% covered by March 31--but if specs cover shorts in March, move to 30% to 50% covered. Be 30% covered by April 30--but if specs cover shorts in April, move to 40% to 50% covered. Be 40% covered by May 30--but if specs cover shorts in May, move to 50% covered. Be 50% covered by June 30 Options / Futures Offered Add another 10% to be 60% covered if the market offers an opportunity. Cover 20% with December Put options if the created floor price is at or above breakeven. Cover another 20% with Dec Put options if the market continues to move higher. Suggest not selling below $3.80 December--at least not for now. Buy Put Option Buy Put Option The information contained in thisplan istaken from sources, which we believe to be reliable, but itisnot guaranteed by us as to accuracy or completenessand issent to you for your informational purpose only. Market strategiesare based upon price assumptionsthat are not predictable or guaranteed. Zenger Farm & Land Management, Inc. basesitsrecommendationssolely on the judgment of Zenger Farm & Land Management, Inc. personnel. Harvest delivery basis: Farmer's Coop -40c; Crete Mills -30c; Adams Ethanol -25c. Notes: Questions:
  39. 39. Zenger Management Create a personal marketing report. Understand the true result of actions. See the big picture. Current position important to present decision. Learn value of incremental and seasonal selling and merchandizing.
  40. 40. Zenger Management2016 Marketing Report Corn Client: Farmer J. Example ADM Hutchin Crop Insurance: Cash Price x $3.23 APH: New Crop $3.46 Est. Production: Coverage Rate: Deferred Bid $3.42 July 2016 - 20c Crop Revenue Goal: Base Price: Cash Flow Price Obj.: Payment/Acre: Breakeven Revenue: Bus. Sold/Acre Date Sold Bushels Location Contract Price Disc/basis Hedge Net Price Receipts 1. 3/15/2015 25,000 Farmer's C Har del $3.70 $3.70 $92,500 Location Bushels 2. 3/25/2015 25,000 Crete Mills Har hta $4.20 ($0.15) $4.05 $101,250 Farm storage 185,000 3. 4/20/2015 25,000 Adams Eth Har hta $4.25 ($0.10) $4.15 $103,750 Feedlot (30,000) 4. 3/1/2016 25,000 ADM Cash $3.54 ($0.05) $0.49 $3.98 $99,500 ADM Hutchin (25,000) 5. 3/1/2016 25,000 Feedlot Cash $3.54 $0.10 $0.71 $4.35 $108,688 Feedlot (25,000) 6. 25,000 $3.23 $0.82 $4.05 $101,225 Sale 0 7. 1/10/2016 30,000 Feedlot Cash $3.85 $3.85 $115,500 Sale 0 8. sale 0 9. Sale 0 10. Sale 0 11. Balance 105,000 12. Location 2 0 13. sale 0 14. Sale 0 15. Sale 0 16. Balance 0 17. Location 3 0 18. sale 0 19. Sale 0 20. Sale 0 21. Balance 0 22. Location 4 0 23. Sale 0 24. Sale 0 25. Sale 0 26. Balance 0 27. Beginning Balance 185,000 28. Ending Balance 105,000 29. T otal bu. 180,000 $4.01 722,413 Date Contracts Strike M onth T ool Cost Status Received Receipts Per Bushel A. 5/10/2015 5 $4.00 Dec-15 Put ($0.200) 10/15/2015 $0.380 $4,500 $0.180 $12,250 B. 5/10/2015 5 $4.90 Dec-15 Call $0.150 7/1/2015 ($0.040) $2,750 $0.110 C. 10/15/2015 5 Mar-16 Hedge $3.750 3/1/2016 ($3.550) $5,000 $0.200 D. 6/11/2015 5 Dec-15 $4.180 10/16/2015 ($3.763) $10,438 $0.418 $17,688 E. 7/7/2015 5 Dec-15 $4.278 10/16/2015 ($3.763) $12,875 $0.515 $20,375 F. 10/16/2015 5 Mar-16 $3.830 3/1/2016 ($3.540) $7,250 $0.290 G. 10/16/2015 5 Mar-16 $3.830 3/1/2016 ($3.540) $7,250 $0.290 % Sold H. 3/1/2016 5 Jul-16 $3.610 Open ($3.600) $250 $0.010 69% I. J. Price Needed K. on Balance L. $4.78 M. N. Today's O. Crop Value: P. Per bushel Q. $3.77 R. Goal/Acre 40 Comm ($45) $48,513 $737 Value/Acre $654 Difference ($83) $4.17 $3.77 Grain Inventory 120 $0.00 RP2 Unit 173 260,000 $4.25 3/1/16 3/1/16 1/10/16 $975,000 75% $3.85 Date Planted Acres: Projected Yield: $1,105,000 1,500 173 $0 Average price --> Bushels Priced Bushels Left to Price Revenue Goal Today's Value Revenue to Protect 180,000 80,000 $981,133$1,105,000 2016 Corn:
  41. 41. Zenger Management Total Bushels Bu. Priced Bu. Left to Price 260,000 180,000 80,000 Today's Value Ave. Price Price Needed $3.77 $4.01 $4.78 Goal/Acre Value/Acre Difference/Acre $737 $654 ($83) 69 % 31 % Yellow Corn Bushels Priced Bu. Priced $981,133 $722,413 $749,306 Revenue goal $1,105,000Breakeven Revenue $975,000 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Today's value Sales to Date Crop Insurance Focus on revenue, not price. Production usually impacts total crop revenue more than price.
  42. 42. Zenger Management When to price Selling Grain Involves Two Decisions How to price
  43. 43. Zenger Management Farm-storage + Disciplined Merchandizing = Value Added
  44. 44. Zenger Management Merchandizing Like A Grain Elevator
  45. 45. Zenger Management Pricing grain involves two decisions . . . “when” and “how”. The “how” can increase profitability with limited risk. Gain a competitive advantage because most productions do not “merchandize” their grain. Administrative, not speculative. Merchandizing Grain
  46. 46. Zenger Management Merchandizing Grain Farm-store Price with the Board of Trade Maximize “carry” Sell strong “basis”
  47. 47. Zenger Management not a casino! Your farm is a business . . .
  48. 48. Zenger Management Neil McKinstray, Anderson Inc., Maumee, Ohio: “. . . farming must be managed as a business, or it cannot be a way of life.”
  49. 49. Zenger Management Need a motivation that is stronger than your emotion.
  50. 50. Zenger Management Emotions are powerful, they are hard to control, and they often lead to poor decisions. Many grain marketing decisions are based on fear or greed—and not on logic, reason, or strategy. Greed comes in several colors. Greed causes us to hold high priced grain too long. Greed also causes us to stew about earlier sales. Greed entices us to risk more money on efforts to "make it back". To make good decisions in volatile times you need a purpose that is stronger than the emotion. The desire to protect your family from financial stress should be great enough to overpower the temptation to speculate. Purposing to create a peaceful and secure atmosphere in the home— versus one of tension and conflict—will help you stop rehearsing the unchangeable past in your mind.
  51. 51. Zenger Management You will keep in perfect peace him whose mind is steadfast, because he trusts in You. Trust in the LORD forever, for the LORD, the LORD, is the Rock eternal. Isaiah 26:3-4
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