“Marketing should be based upon a plan, not emotions.”
In a highly-technical, but yet down-to-earth factual presentation, Tom Leffler of Leffler Commodities and Ag Consulting at Augusta asked: “Where are prices going? More importantly, are you ready?”
At the 580 WIBW Farm Profit Conference in Lyndon, Leffler, Lyon County native with a farming and cattle background and commodity broker and ag marketing advisor since 1991, spoke to nearly 150 farmers and ranchers from eight counties.
With an enlightening slide presentation, Leffler compared: “What changed when Grape Nuts cereal removed GMOs (genetically modified organisms)?”
Thirty-two ounce boxes went down to 29 ounces. Vitamin A content went from 15 percent to zero, and riboflavin decreased from 25 percent to 4 percent. “That’s not just nuts, that’s Grape Nuts,” grinned Leffler, with noticeable seriousness.
In a power point presentation, Leffler revealed commodity price futures now compared to a year ago.
Wheat, corn and soybeans prices are all down from 12 months earlier. July Kansas City wheat is off $2.10 from an $8.38 high, while corn is $3.01 lower than a $7.34 peak. March soybeans are down $1.63 from $14.89.
However, all cattle are up considerably. March feeders are $167, showing an $18.13 increase, as August feeders, at $170.42, are $9.87 above a year earlier. April lean hogs are up $5.85, to $94.20.
These numbers compare to record high prices of wheat at $13.95, corn $8.49, and soybeans $17.89.
Highest feeder cattle price has been $172.77, as live cattle traded at a peak of $144.57, and lean hogs topped at $107.47.
“There have been opportunities to sell commodities at all of these high levels,” Leffler pointed out.
“Did you take advantage of those peak prices? Or, is your marketing plan guided by greed, hope and fears, ‘coulda, woulda, shoulda’ marketing like many producers?” Leffler asked.
“Just how important is marketing to you? Is marketing shooting for the highs or selling at a profit? Which is it?” questioned Leffler, who presents daily reports on several radio agriculture programs.
To market at a profit, producers typically need marketing advice, and Leffler contended that service should be included in a farm budget.
“Are you willing to take odds of 300 to one,” Leffler queried the crowd.
“That is about what the odds are of picking the top of the market,” the speaker claimed.
Diversification in marketing is important to highest profits, Leffler said. Comparing returns from one investment for 10 years, to dividing the investments into seven different opportunities, his example showed a 34 percent higher return with diversification.
Realizing the effect of continuing drought forecasts, Leffler displayed charts of corn, soybean and wheat price fluctuations, with usage, stocks, forecasted acreage plantings and projected crop production. Crops in Argentina, Brazil and China can impact the domestic market here.
Deterioration of wheat condition in this country was noted with Kansas dropping from 63 percent good to excellent in December down to only 35 percent good to excellent in February. Surrounding states have similar reduction in wheat crop outlooks.
Likewise, charts were shown revealing cattle price variations over the past 40 years and in recent months.
“While cattle and beef have made big dollar moves in the past three weeks, that’s not a new story,” Leffler said.
Cash cattle went up $18 in that period this year, while choice beef increased $39.50. “The interesting point here is that in two weeks during 2003, cash cattle also climbed $18, and choice beef went up $44.21,” Leffler said.
Hedging strategies for the 2014 corn and soybean crops, as well as feeder cattle and live cattle, were discussed for buying put options; versus buy, put and sell call options; or hedging to sell futures.
Leffler explained, “Buying a put option establishes a floor price with unlimited upside potential for the cash, with limited cost and no margin calls.”
“A ‘fence’ to buy a put and sell call option establishes floor and ceiling prices. There is upside risk with the short call, but possible initial marketing and margin calls reduce initial cost of the put.”
In a futures hedge margin, if the market goes up, and there is a margin call, the selling price is locked in.
“Now futures trading involves risk of loss, and is not suitable for everyone,” Leffler emphasized.
However, for those who would like to change their marketing ways, Leffler insisted, “You must know your cost of production, understand the use of futures and options, and know your local and current and historical basis.
“It’s essential to write, post and execute your marketing plan in various methods and increments,” he contended. “This requires being a disciplined marketer and to use risk management.”
In order to be satisfied with a marketing plan, “Do not dwell on past mistakes or decisions, but have a plan, if the wrong decision is made. You must accept that markets are highly unpredictable,” Leffler emphasized.
“Most importantly, if you cannot handle these requirements, hire a marketing advisor,” Leffler insisted.
The energetic, entertaining speaker declared: “Discipline is the way you handle yourself no matter what else is going on around you. Having discipline results in success. Lacking discipline can result in failure.
“Markets can remain illogical far longer than you or I can remain financially solvent. Never forget that,” Leffler concluded.