- Good marketing takes price savvy.
- Be prepared to recognize and take advantage of pricing opportunities.
- A manager needs to know how the market thinks, feels and functions.
Anything to do with economics, especially prices, is frustrating to most managers. Nevertheless, a simple fact is: “The only follow-through to a good job of production is a good job of marketing.” Good marketing takes price savvy.
Price savvy begins with recognizing that there is no such thing as “the price.” The marketing system, throughout the marketing year, will offer opportunities to sell at many different prices. You must be prepared to recognize and take advantage of pricing opportunities. Making the most profitable decision takes a mechanic’s knowledge of the price making machinery – the market. A manager needs to know how the market thinks, feels and functions.
The market is a living and breathing thing. It has a heart and a pulse. And, the central nervous system (brain) of all major agricultural markets is located in the trading pits and programs of the commodity futures markets. Traders use available information to buy and sell futures contracts and these trades determine futures contract prices and, therefore, cash prices.
Managers must learn where to read, how to read, and how to react to changes in the market’s mood. This means understanding the reasons behind price ups and downs, how the grading system relates price to value, when storage pays and when storage does not pay, how a combination of cash and futures markets multiply your marketing alternatives and how to use information to select alternatives. It means listening to what the markets are telling you.
On March 28, the KCBT July wheat contract price declined 55 cents. A few days later, the KCBT July wheat contract price increased 59 cents. The wheat market is expressing excessive uncertainty.
Uncertainty comes from slightly below average wheat stocks; very tight U.S. corn stocks; extremely late freezes in Colorado, Kansas, Oklahoma, and Texas; delayed corn and hard spring wheat planting; expected above average soft red winter production; dry planting conditions in Australia; increased exports from India; and economic problems in Egypt and the European Union.
About the only thing for certain is that the wheat harvest prices will be different from what the market is now offering. However, the current June forward contract price is a good place to start interpreting the market and developing a strategy for selling 2013 harvested wheat.
At this writing, the KCBT July wheat contract is $7.90. The forward contact basis for some elevators in Oklahoma and the Texas panhandle is a minus 40 cents. 2013 harvest delivered wheat may be forward contracted for $7.50.
The Oklahoma/Texas Panhandle monthly average 2012 June wheat price and the five-year average June wheat price were both $6.42. During the last five years, average June wheat prices have ranged from $3.72 to $8.14. Using $6.42 as a benchmark makes $7.50 look relatively good for harvest delivered wheat. The market may be saying, “price some wheat.”
The freeze damage, delayed corn planting, and other current market factors have already been used to establish the current KCBT July wheat contract price of $7.90. Future price moves up or down will be based on new information.
Prices change because new information changes the mood of the market, the number of buyers and sellers, and the amounts bought and sold.
Learn to recognize the market’s moods, note what environmental events impact the moods; learn the normal outcome of each mood, and then modify the plans to match the moods.
Strive not to overreact. As with life, it is often best to keep things simple. Most importantly, have strategies that allow you to calmly react to each market mood.
In reality, price savvy is having good plans that can be adapted to each market situation (mood).