Joe Stewart has been dancing around the edges of milk marketing for several years. In fact, in mid-2009, he was profiled in Progressive Dairyman as a producer who wanted to take his farm marketing to the next level and was unsure how to do that. At that time, a marketing assessment from Stewart-Peterson found Joe scored a 2 in the “experience” area, one of five critical success factors for good marketing. On a scale of 1 to 5, with 5 being the best, experience turned out to be Joe’s chief constraint – the main thing standing in his way of marketing well.
Since then, Joe has begun the process of transitioning the 600-cow family dairy business from his father. He was married in 2009, which he described as “a fantastic distraction” from the farm’s financial challenges. Whether the distractions are pleasant or pressing, Joe knows it’s time to get back to learning about the markets.
“Marketing is becoming more and more of a necessity, and I want to get better at it,” he says.
Joe joined one of Progressive Dairyman’s trading peer groups and is ready to tackle this challenge head-on.
“I still have hesitation when it comes to what to actually do. I and my fellow dairymen – we are all optimistic we can get every penny the market offers. Because I’m not totally comfortable, I gave up some huge opportunities to sell milk,” he admits.
In the trading group, Joe intends to make decisions as he would if he were marketing all 1.2 million lbs of milk, or about six contracts each month. He will also experiment with locking in feed costs.
In addition, within the safe learning environment of the trading simulator, Joe wants to experiment with some philosophies about how to do marketing well.
“We had a meeting with a business consultant in late 2010, and their philosophy was to lock in a margin over cost. Now I’m wondering if that is the best strategy. It locks in a price to cover my variables, and minimizes those risks, but what about my fixed costs? How do I get ahead? I want to put that advice to the test.”
As he gets started, Joe is glad to be able to learn without making costly mistakes. “Marketing experience is what I’m looking for.”
Four other producers have joined the peer group for the same reasons. The group is mentored by Mark Ludtke of Stewart-Peterson. Each participant is beginning with a marketing assessment profile (MAP) to help them assess their strengths and reveal opportunities for learning.
“I want to learn how marketing works so that I can protect my income stream and maybe even get rid of some of the lows,” says Mitch of Mystic Valley Dairy in Wisconsin.
He’s also interested in learning from others in the group. The five producers have agreed to monthly conference calls to compare notes on their strategies and the impact of their decisions.
Ludtke believes strongly that trading experience in a “safe” environment will help producers gain confidence.
“Everyone in the dairy industry is talking about how important risk management is to future success, yet producers are largely unfamiliar with these tools,” Ludtke says. “Learning by reading or in a class setting is a start, and then you just have to do it to gain experience.”
Members of the first Progressive Dairyman trading peer group have set up their trading accounts with the University of Florida’s Financial and Agricultural Commodity Trading Simulation – FACTSim for short. The traders’ beginning account balance is $200,000, giving the participant with the largest number of cows an adequate marketing budget.
In the simulator, the net financial effect of each trading decision shows up in the trader’s “available capital” and “cash on hand.”
Despite this measurement, Ludtke is coaching the group members to evaluate their performance based on decision-making experience gained, not on the balance in their simulated hedge account.
“From a big picture standpoint, using a simulator is different than a real-life marketing in that the simulator’s only measurement is the hedge account balance,” Ludtke points out. “In reality, a farm’s marketing goals are much broader than profiting from any one trading decision. Real marketing goals must be more long-term and seek to maximize revenue opportunity while managing price risk.”
You can read about what the group has learned in Progressive Dairyman’s May 2011 issue. We’ll report results in terms of each player’s balance in their hedge account, as well as their comments about their own decision-making. PD
Angie Molkentin is a writer from Oconomowoc, Wisconsin. She has special access from Stewart-Peterson to observe the FACTSim dairy trading group and the interactions of producers in the program.
Join a trading peer group!
You can join a team of Progressive Dairyman readers who want to learn how to make marketing decisions. For producers who join a group in 2011, all fees will be covered through a sponsorship from Stewart-Peterson. Mark Ludtke will serve as mentor for the group.
To join, email Ludtke at mludtke@stewart-peterson.com , or call him at ( 800) 334-9779 .
Benefits of participating:
• Learn the language, concepts and typical positions in commodity trading.
• Learn how to move in and out of positions.
• Experience the impact of decisions made.
• Develop the discipline to execute decisions.
• Share experiences and ask questions of those in your peer group. PD
