I’ve read numerous studies over the years that show that only around 5% of producers in Canada use options & futures as part of their marketing toolbox compared to about 35% in the US.
The good news is that more and more Canadian farm businesses are benefitting from hedging strategies on grains, livestock and the Canadian dollar to protect revenues, manage risk and take advantage of pricing opportunities.
To help you along in the process, here are the Top 5 Marketing Questions to ask yourself that I’ve taken from the Government of Manitoba “Gaining Ground – Agribusiness Assessment” and the Government of Saskatchewan “Taking Stock – Farm Business Development Initiative” programs.
1) Set marketing goals that can be measured & have a written marketing plan?
As one of my mentors used to say: “The shortest pencil is better than the longest memory.” It doesn’t have to be elaborate, in fact simple is better, but write it down.
2) Monitor and revise your marketing goals & plan?
This is a living breathing document and/or spreadsheet so update it monthly or whenever you adjust your production estimates, make a sale, or put on a hedge.
3) Have the interest and skills to make good marketing decisions?
If you don’t want to be in charge of marketing, find someone that’s part of your farming operation who does. Or, seek out a registered commodity futures adviser that focuses on farm risk management.
4) Understand and use options & futures hedging strategies?
Search online, take hedging course, attend marketing presentations and turn to a commodity futures adviser to get the knowledge you need to get started.
5) Have an overall revenue management strategy for marketing your products?
Options & futures are just one piece of the marketing puzzle along with basis levels, storage considerations, cash market dynamics, production considerations and your breakeven & profit targets. So make sure you have all the pieces and that they fit together to fully complete your marketing picture.
David Derwin is a portfolio manager and commodity/investment adviser with PI Financial Corp. (firstname.lastname@example.org / www.commodity-options.ca ), a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options.