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

Zenger Management

Zenger Management

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.

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Not a commodity broker

Not a grain merchant

Personal consultant

The Farmer’s

Advocate

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Philosophy

“Production is king.”

Have a business purpose

Focus on profitability

Make an informed decision

Do what you enjoy . . . farm

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Philosophy

Don’t base decisions on fear, greed or pride. Don’tlisten to radio jocks, snake oil brokers, coffee shop gossips, or grain merchants. They have ulterior motives—many will intentionally lie.

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Philosophy

Do base decisions on reality, profitability, and humility. Dorespect family and business responsibilities. Do consider seasonals, technicals, fundamentals, and your commonsense.

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A bad decision breeds another bad decision.

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An informed decision is “good” regardless of the outcome.

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• Profit margin

• Cash flow needs

• Labor and equipment logistics

• Price outlook

Marketing Decision Factors

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How do you stop a runaway horse?

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How do you stop a runaway horse?

Bet on him!

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Weather

Acres

Demand

Government

Perception

Outside Money

We cannot predict the market!

80% Strategy

20% Outlook

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Yoda says, “The future, predict we cannot!”

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“In a dark place we are, probabilities give light!”

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Price Outlook

Probabilities

Fundamentals--Grain stocks

--Demand forecast

--Weather

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Global grain stocks-to-useflat despite record

production. Consumption is increasing due to rising

standards of living and because grain is “cheap”.

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Price Outlook

Probabilities

Fundamentals

Historical Seasonals

--Identify “selling seasons”

--Sell incrementally

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Price Outlook

Probabilities

Fundamentals

Seasonals

Technical indicators

--Chart signals

--Keep simple

--Identify short-term targets

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Keep technical study simple. Technical indicators work because so many use them—a self-fulfilling prophesy.

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-

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Weekly charts show long-term trends and help develop realistic expectations.

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Price Outlook

Probabilities

Fundamentals

Seasonals

Technical indicators

Money Flow

--Speculative funds

--Index funds

--Sell the ”Fund Run”

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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.

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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 this plan is taken from sources, which we believe to be reliable, but it is not guaranteed by us as to

accuracy or completeness and is sent to you for your informational purpose only. Market strategies are based upon price assumptions that are not predictable or guaranteed. Zenger Farm & Land Management, Inc. bases its recommendations solely 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:

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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.

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 S old Bushels Location Contract P rice Disc/basis Hedge Net P rice 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 S trike M onth T ool Cost S tatus Received Receipts P er 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 % SoldH. 3/1/2016 5 Jul-16 $3.610 Open ($3.600) $250 $0.010 69%I.

J. Price NeededK. on BalanceL. $4.78M.

N. Today'sO. Crop Value:P. Per bushel

Q. $3.77R. Goal/Acre

40 Comm ($45) $48,513 $737Value/Acre

$654Difference

($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:

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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$1,105,000Breakev en

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.

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When to price

Selling Grain Involves Two Decisions

How to price

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Farm-storage + Disciplined Merchandizing

= Value Added

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Merchandizing Like A Grain Elevator

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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

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Merchandizing Grain

Farm-store

Price with the Board of Trade

Maximize “carry”

Sell strong “basis”

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not a casino!

Your farm is a business . . .

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Neil McKinstray, Anderson Inc., Maumee, Ohio:

“. . . farming must be managed as a

business, or it cannot be a way of life.”

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Need a motivationthat is stronger than your emotion.

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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.

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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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