Are Your Farmers Confused About Marketing

After losing nearly $10,000 in the futures market, one midwestern farmer decided that a little bit of marketing knowledge could be very dangerous to financial health. Another farmer, when asked how many soybeans he had in storage, replied, "Oh, I'm up to five crops now." Still another farmer decided to pass up $3.70 per bushel for government stored corn. Why? "Because the government is paying me 26 1/2 cents per bushel a year to store, and that's the only way to pay for my grain bins." But, a year later the corn sold for $1 a bushel less.

Yet another farmer put in an order to sell grain if the price moved up just 3 cents more. However, the price headed down and the farmer chased the price decline, continually putting in orders just 3 cents above the market. Finally it priced near the low and he took a $1.50 per bushel loss in an attempt to gain 3 cents. This one marketing decision involved over $100,000.

These are true stories of farmers we know. Unfortunately, the list of seemingly mistaken marketing decisions goes on and on.

Marketing confuses many farmers and is a source of frustration. In some situations, farmers have just given up on marketing and chosen to concentrate on the production phase they understand better. We believe this is dangerous. The successful independent farmers of the present and future must be managers not only of production, but also of marketing and finance.

It's our role as educators to understand their sources of frustration with marketing and to develop effective marketing skills programs.

Why the Confusion?

Agricultural science may add indirectly to the farmers' marketing confusion. Many of the production problems faced by farmers over the last 50 years have been solved by agronomists, animal scientists, agricultural engineers, and entomologists. These professionals solve problems with their understanding of the laws of physical and biological sciences, laws that always give the same results. The stability of these laws allows a solution to be found, and often a formula can be given to solve the farmers' dilemma.

Marketing, on the other hand, involves the study of the laws of social sciences such as economics and psychology. These laws are based on observations of human behavior believed to hold in most cases, but can't be proven to always hold.

The laws of social science have at least three important distinctions from those used by other agricultural scientists. First, social science laws relate to how people behave, and people aren't as predictable as molecules in a chemistry experiment. Second, an economist can't control the environment as can a chemist. Third, the social scientist simply has to deal with more variables, all of which can affect outcomes.

These contrasts make it difficult to provide farmers with formulas for solving their marketing problems. Yet, a farmer's mental orientation is to rely on agricultural science to solve problems with a formula. Frustration sets in when farmers are unable to achieve the goal of selling near the top price. They again look to agricultural science (or a marketing guru) for the formula. They lament that if they'd just had the formula, they could have priced their crop at the highest price of the year and their financial problems would be over.

On closer examination, we find these farmers with unrealistic goals, with a weak decision-making base, and with an attitude that suggests it's their own ignorance that keeps them from their goal. Each of these items leads them to feelings of failure and frustration.

So What's the Farmer's Problem?

A study at Purdue focused on problem areas faced by Indiana farmers. Marketing was listed as number one.¹ When we ask farmers what really bothers them about marketing, we get many answers, but often we can determine what the real problem is. We'll give you some examples of what farmers tell us and then provide you with our evaluation of the real problem.

Farmer 1: "I just don't know what to do. It's hard for me to make a marketing decision. "We believe such farmers are looking for a formula, wanting someone to tell them what to do. As educators, we need to reorient their thinking so that they realize there's no magic answer. They must put marketing into a decision-making framework, to make decisions from a strong knowledge base.

Farmer 2: "I'm just awful at marketing. The fellows at the coffee shop say they sold soybeans at $8 a bushel and I only received $6.50 for mine."This farmer has a false base of comparison. We need to do a better job of helping farmers monitor pricing performance. The concept of being a little better than average in production also holds for marketing. The comparison base should be the average, not the absolutely highest price.

Farmer 3: "I tried a marketing plan once and it was like trying to shoot a buzzing fly at 100 yards." Planning is absolutely essential in marketing. Farmers must know what their marketing objectives are before they'll recognize they have been reached. Reaching objectives is called success. Too many farmers have a "good price" as their pricing goal. A "good price" isn't defined and seldom reached.

Farmer 4: "I'm too busy to keep up with the markets."We've heard this many times, and have also heard some of these same people later say, "I should have been spending a little time in marketing rather than all my time planting this spring."Marketing does require some time even in the busiest of production seasons. Planting and harvest season, however, isn't the time to formulate the plan, but rather to act on the plan if market thresholds are reached.

Farmer 5: "It's not worth my time to figure out all that marketing stuff."We think this producer is using the strategy, "if you can't understand it then simply ignore it." When marketing decisions can have a 30% impact on yearly revenues, they shouldn't be ignored. The returns from an added hour of time spent weekly in marketing may yield some of the highest potential earnings possible.

Farmer 6: "Marketing is just a big gamble, and I'm not a gambler."Many of the marketing decisions that relate to physical handling and delivery can be made with simple budget analysis, without gambling. Examples include optimum selling weights of livestock, grain drying economics, and the cheapest form of transportation. Pricing decisions, however, involve much greater uncertainty and introduce considerable potential variability to the farm business. Pricing does involve risk taking, but marketing alternatives are available that can help the farmer manage the price risk.

Developing Farmer Marketing Skills

We have four broad goals in teaching marketing to farmers:

1. Change the farmers' attitudes about marketing.
2. Encourage them to plan their marketing and integrate it with the production, financing, and risk-bearing aspects of their business.
3. Get their marketing into a decision-making context.
4. Help them monitor their progress.

What can county agents do? The list is long, but we'd suggest these specific activities:

1. Encourage farmers to keep marketing records. Every farmer should have an inventory and pricing record that tells them how much of their commodity is priced and the amount that remains unpriced. Second, most will want to keep some record of futures prices and basis levels. Third, some record of the major events influencing markets is usually helpful. Encourage them to have a "marketing time-out," a set time each week when they take time away from production and devote it to market analysis and planning.
2. Help farmers in your county obtain a more accurate evaluation of their pricing performance. Compute the average price received at major buying points in the county on a quarterly and annual interval. Make adjustments for storage cost on grain. Encourage farmers to compute their average price received and compare it with the county average.
3. At the end of each quarter (or annually), write an article showing how three or four marketing alternatives would have resulted in different prices received. Be sure to explain why the alternatives did or didn't work.
4. Organize a county marketing club. Have farmers bring various newsletters, charts, and advisories. Have a local resource person speak to the group. Consider having individuals report on the commodities of interest. Rotate the commodities so that each person has the opportunity to research more than one market. Have your marketing club challenge a neighboring county's team to an "on-paper" trading game.
5. Get to know the local grain and livestock merchants as well as brokers in the county. Draw on their knowledge, information, and market analysis. Target the financial lenders as another clientele group that needs more marketing education, but also draw on their understanding of financial management.
6. Help farmers plan their marketing as they think about production, financial needs, and riskbearing ability. Help them budget cost of production and quantify their cash flow obligations. Start them thinking ahead of the market rather than behind the market. Help them define their marketing objectives.
7. Finally, teach them risk management, especially the decision-making process. Marketing decisions should be made from a position of information, not ignorance-with confidence, not confusion. But also remind them that even the best of marketing decisions sometimes have sour outcomes, because some new piece of information comes to the marketplace after the decision is made. This is no reason to turn away from sound decision making, but rather to realize that sound market decision making still involves uncertainty.

Many challenges remain for Extension in helping farmers develop their marketing skills. Perhaps some of the ideas in this article will encourage you as a facilitator in your county to reduce marketing confusion, increase market understanding, and, ultimately, improve farmers' marketing performance.

Footnotes

1. Craig L. Dobbins and Paul R. Robbins, "Setting Far Management Priorities," Journal of Extension, XXI (July/August 1983), 9-13.