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Walking the talk on the road to better marketing

Angie Molkentin Published on 29 October 2010

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The road to better marketing continues for Dave Geiser and Deb Reinhart of Gold Star Farms. After choosing a marketing consultant in November 2009, Dave and Deb began their journey toward better control of their business through better marketing.

(Click image at right to open at full size in a new window.)

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Travel log entry, early September 2010:
"We are struggling with our forward contracting. We have waited all year for $16 milk and now September milk is trading at $16-plus. We have some September milk contracted in the $15-plus range. Money is tight, and we need every dollar we can get. And yet we have committed to locking in a profit.."

Since we’ve been following Deb and Dave’s marketing decisions, most of those decisions have been beneficial to the bottom line. Those decisions also paid emotional dividends as the couple went from feeling like price takers to price makers.

Traveling down the marketing road was relatively smooth while milk prices were either low or sideways through the first two quarters. Sharply uptrending markets, however, bring not only opportunity, but a commitment test for strategic marketers.

Why? In the process of incrementally capturing opportunity while managing risk, the strategic marketer is not always going to capture the top price. And although that’s difficult to swallow on any given day, consistent marketing is designed to deliver broader benefits for the business.

1610pd_molkentin_fg_1 “Our strategy has been to consistently lock in some milk at profitable levels while giving ourselves multiple opportunities as the market goes up,” says Matt Mattke of Stewart-Peterson, who is Deb and Dave’s consultant. “When markets rally quickly, it is likely that those sales will lag a little behind the market, because picking the top of the market on a consistent basis is impossible.” (See Figure 1.)

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Deb and Dave are striving to remember this principle. It’s a mind-set shift.

“It’s one thing to want to lock in a profit in bad times and another to lock in a profit when the market is going up,” Deb says. “The milk plant takes off the difference between contracted price and pay price. It’s difficult to see that on the check. But we need intellectual thinking versus emotional thinking.”

Intellect reminds Deb and Dave that giving up a little during the rally buys them what they wanted – more stable cash flow and managed risk in the big picture.

“At least we have some guarantees on profit on some percent of our milk,” says Deb, who is the farm’s business manager.

Dave chimes in to reassure his wife and business partner: “We must set a strategy and stay with it.”

Normal emotions
Mattke says that Deb and Dave’s emotions are typical for producers during price rallies. He spends a lot of time reassuring and coaching producers, reminding them of their long-term goals and the trade-offs of deviating from recommendations.

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“Our job is to help producers set their goals, find the best strategies to get there, then make the best decisions they can at any given point in time, with the information they have on that day, in order to achieve the goals they set out to accomplish,” he says.

So an adviser’s job is part technical analyst, part coach.

“There are so many components to successful marketing,” Mattke says. “There’s the technical side – analyzing, charting and strategizing. Then there’s the psychological side – things like commitment to the original goals, discipline to execute, control of emotions and consistency.”

Mattke encourages strategic marketers to keep perspective. “Keep your eye on your weighted average price for the particular month, quarter or year. You will often see that you’ve given up very little price opportunity, and you managed your risk in the process.”

Here again, Deb and Dave, having studied and learned about marketing for the past 10 months, possess the head knowledge. They know that by selling in increments, they have opportunity to capture some of the higher prices on the milk that is not contracted. Each incremental sale is made with the best information they have on that day.

“It’s hard to walk the talk,” Deb admits. “However, we cannot just take what the market gives us. We have learned that when the market is going up, that is the best time to lock in. Last November if we had locked in the $16 that was available, we would not have had the tough spots this year.”

Mattke says history verifies that point. “Those producers who marketed consistently through ’07 and ’08, and remained committed throughout ’09, had protection in place that saved the farm.”

Travel log entry, late September 2010:
"We were able to lock in some October contracts over $16 today. That feels a lot better, like we're locking in at a profitable level plus gaining some ground. If I step back and look at the charts, I know we're just evening out those highs and lows."

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Deb says going forward she will strive to keep her emotions in check and be disciplined about planning and executing both feed buying and milk marketing.

“In the past the combination of low milk and high feed was a disaster for us. I don’t think we could weather that storm again; therefore, it becomes even more critical to lock in a profitable milk price.” PD

Editor’s note: Progressive Dairyman will offer periodic updates on Deb and Dave’s marketing experiences in 2011. The magazine would like to thank Deb and Dave for allowing it to portray their experience in front of a national audience.

Angie Molkentin is a writer from Oconomowoc, Wisconsin. She has access from Stewart-Peterson to observe Gold Star Farms’ interactions with its Market360 program.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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RELATED RESOURCES
Previous 'Road to better marketing' articles:
Let's get control of our business
How we mapped out our feed strategies
Scenario planning pays off for Wisconsin couple
For better decisions, add structure
'We can be price makers'

Downloadable pdfs:
'Road to better marketing' Farm Marketing Glossary
Stewart-Peterson's "Get started marketing well" e-Book

Videos:
Now video segments from “Road to Better Marketing” workshops are available for download at www.stewart-peterson.com . Nearly five hours of instructional video is available and can be viewed in segments. Segment topics range from “What is Great Marketing” (27 min.) to “Market Scenario Planning” (17 min.). Hands-on examples are also offered, showing how marketing concepts can be applied during both high and low points of a milk price cycle.

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