Master Marketer Program

 

Summary & Review

Introduction

The safety net provided to US producers is being eroded following changes in farm programs, trade liberalization and an emphasis on reducing the budget deficit. Agriculture itself continues to move in the direction of fewer, larger, more capital intensive farms, which tend to be highly leveraged and more specialized in their production mix. The result is substantial price volatility, and a greater risk from adverse price movements or production shortfalls. The marketing and risk management skills of US producers must improve if they are to successfully compete in the dynamically changing worldwide agricultural industry of the 21st century. Enter the Master Marketer Program, in which producers are trained in advanced risk management/ marketing techniques through an intensive 64-hour program. The program combines the Master Volunteer Program approach and the Marketing Club concept in a pilot program.

 

Procedure/Methods

The Master Marketer Program intensively trains one or two producers per county in advanced marketing/risk management techniques. The producers who must show expressed interest in marketing and demonstrated leadership abilities will go through an intensive 64-hour marketing education program. This should enable them acquire the advanced level of marketing expertise, and help them manage changing risk in the global agriculture. These well-trained volunteers will then work with extension agents to start and lead marketing clubs in their counties. Notebooks, videotapes, and other resource materials will be developed for use by master marketer graduates for starting and leading marketing clubs.

 

Volume I. Basic and Advanced Marketing

This focuses on developing and Implementing the Successful Marketing Plan. To develop a good marketing plan the producer needs to:

To develop a marketing plan, the first requirement is to identify income and expense sources and perform sensitivity analysis. The Master Marketer Program uses the Budget Projection software (BudPro), which develops crop and livestock budgets. The Standardized Performance Analysis (SPA) is an analytical tool which uses financial, marketing, and production data to analyze enterprise performance. The Master Marketer Program identifies the type of financial, marketing, and production information that may be collected. Participants are also introduced to a review of futures and options mechanics, to enable producers control when they price commodities and how. The course teaches pricing alternatives in the futures markets, pricing strategies, the concept of futures contracts, options trading, and the role of basis in hedging agricultural commodities. Participants are introduced to contract specifications for Chicago Board of Trade Corn Futures, contract specifications for Kansas City Board of Trade Wheat Futures, contract specifications for New York Cotton Exchange Cotton Futures, and trading specifications for live and feeder cattle at the Chicago Mercantile Exchange.

 

Volume II. Fundamental Analysis

There are three basic approaches professional traders use in forecasting commodity prices:

The concept of fundamental analysis, forecasting with supply and demand factors, is explored for cotton, wheat, and corn in the second session. Participants are introduced to the Cotton Outlook and Situation for 1996/97 and 1997/98, cotton marketing strategies, harvest strategy, and the art of predicting world cotton prices. Cleveland's marketing laws show when to buy or sell cotton futures. The marketing strategy calls for a consideration of the price outlook, and costs of production and seasonal trends. Although the goal is a final high average price, the strategy should vary by producers' risk bearing abilities. There should be a latitude of 12 to 24 months for spreading sales, and decisions may not be made based on fear, greed, or wishful thinking. The techniques of fundamental analysis for wheat and corn are similar to those for cotton. Again the factors of production, demand and supply come into play.

As government support programs are gradually reduced, growers and their lenders are assuming additional risks for which they should be willing to consider alternatives for managing. Such alternatives range from the Iowa Farm Bill Study Team's suggestion of a federal government funded revenue insurance coverage, to Harrington and Doering's partially funded USDA revenue insurance that would be privatized in due course. Other options such as forward contracts, hedge-to-arrive, minimum price contracts, futures, options, Multi-Peril Crop Insurance (MPCI), Crop Revenue Coverage (CRC) insurance, private hail insurance, private replacement coverage crop insurance (e.g. Market Value Protection), and grower education on insurance and marketing alternatives, are used in private markets. There is a simulation exercise to determine the kind of insurance coverage farmers would choose given the present circumstances.

 

Volume III. Technical Analysis and Marketing Plans

In technical analysis the underlying theory is that future trends of grain and livestock prices can be forecast by analyzing the history of price movements and the current market activity. Technical analysts study three factors: price movements, volume, and open interest. Price movement happens to be most important. Tools technical analysts use to determine price movements include trend lines, resistance planes, support planes, chart gaps, corrections, head and shoulder formations, key reversals, island reversals, double tops and bottoms, trading volume, open interest, and relative strength indices. In technical analysis participants are taught how to prepare charts on computer, and to read and interpret consolidated patterns.

The concept of agricultural lending by banks assuming management, production and marketing risks is introduced to participants, as a necessary tool in risk management.

 

Volume IV. Marketing Discipline, Integration and Diversification

Market discipline and planning focus on the psychological strategies for successful trading, namely: developing discipline, handling sabotage, and overcoming fear. The above, when handled appropriately, enable producers handle trade profitably. The private consulting firm, Trading on Target, in Cary, NC, offers seminars and workshops on the above strategies.

Producers are introduced to the concept of cooperative marketing pools, and how these affect individual producers. Cooperative marketing pools market commodities to best advantage, and pay producers an average price adjusted for product quality and cost of marketing. All producers in cooperative marketing pools are bound by marketing agreements.

The course module, Being Prepared to Borrow, prepares producers on how to finance alternative crop enterprises. The twelve points listed deal with the amount of money required, repayment period and method, and risk management measures.

As a way to manage risky market alternatives producers are introduced to the concepts of value added, niche markets, and identity preservation. Producers are encouraged to store the produce until the market is right to sell, sell specific breeds or varieties to buyers or processors, and properly and accurately describe the quality of products prior to pricing and delivery. Contracting is the marketing strategy that covers all of the above. Producers who participate in the Master Marketer Program are encouraged to start a marketing club. Course participants were required to evaluate each session of the program.

 

Results

The Master Marketer Program is an excellent program for producers who are large enough and have the capital to support risk management programs. They also need to be very committed to be willing to invest the time this program takes. For producers with smaller operations and less time, segments or summaries of this program may be more worthwhile.

It does beg the question that suggests that producers who do not meet such qualifications may not be positioned to be considered full-time producers.