In tight margin years like 2015, Jeff Fisher scrutinizes every budget expense. One item he didn’t cut this year was his market adviser. The Tolono, Illinois, farmer has learned even in lean times, utilizing his adviser’s expertise can be the difference between profit and loss on the family’s corn and soybean farm.
“Marketing may be the most important part of our job description,” Fisher says. “Marketing may be even more important when prices are lower and profits are at stake. Even at break-even corn and soybean prices, a good adviser can help you take advantage of what the market has to offer.”
Fisher didn’t always use a market adviser. He helped his father with marketing in the early 1980s while still in high school and college. But once Fisher started farming full-time, and his operation and family grew in the 1990s, he decided he needed someone to watch the markets for him. Fisher relied on DTN and AgriVisor for commentary, and began using a market adviser at a local co-op.
“When that adviser retired, I was listening to Mike Zuzolo on the local public radio station,” Fisher recalls. “I liked his simple and easy-to-understand approach to marketing. I learned if you aren’t willing to put in the time yourself to do it right, an adviser is the way to go.”
Fisher says after meeting Zuzolo, whose service, Global Commodity Analytics and Consulting LLC, is based in Atchison, Kan., he knew they were on the same plane of marketing philosophy.
“Some advisers make marketing too complicated. I did not want to go that deep,” he says. “I had already learned that I didn’t like margin calls. I use Mike’s advice to make cash sales.” Fisher has used Zuzolo for the past 12 years.
KNOW YOUR STRENGTHS
Diane Hanekamp, manager of strategic marketing for FamilyFarms Group, Brighton, Ill., believes farmers should always have access to daily market analysis, even if they pay for it, with the opportunity to expand into an individualized, consultative relationship.
“You just cannot be an expert in every aspect of modern farming operations, and revenue management and protecting profitability are too critical to be left at the whim of the market,” she says. “There is always a range of expertise and emphasis on utilizing resources among any group of farmers. That being said, every operation in our group has subscription-based access to several daily advisory/commentaries and regular webinars/conference calls with experts.”
Zuzolo says a market adviser can help the farmer client focus on the factors that really matter when marketing grain. “In today’s computer-traded and news-headline, algorithm-trading environment, I think it is important for the increased success of a marketing plan for a farmer to hire an analyst who is focused upon the medium-term, not the short-term,” he says. “Hire someone who is forecasting prices based on the crop/livestock marketing cycles, not every single USDA report or weekly weather event. Otherwise, you’re likely to lose focus on your overall goals.”
Tyler Uden is a merchandiser for Clarkson Grain, based in Cerro Gordo, Ill., and also helps market grain for his family’s Illinois farm. He says farmers choosing an adviser should look for someone with experience and end-user customer knowledge to maximize possible returns.
“Marketing goals are very individualized, and you want someone who is well-connected, knows the industry and is dedicated to getting you the best possible price for your grain,” he says.
ASSESSING THE ROI
Fisher says it would be difficult to measure the return on his investment (ROI) with Zuzolo. However, he believes the investment has paid off every year through the power and value of information. Fisher declined to provide specifics but says he pays Zuzolo an annual fee based on bushels produced.
“Mike provides information I might not otherwise know. I can make timely marketing decisions based on that information. One good sale I might not have otherwise made can more than pay for the subscription charge,” he says. “But you have to act when the recommendation is made.”
Zuzolo encourages farmers considering hiring a market adviser to be prepared to discuss the financial needs of both parties. “In covering costs in a bona-fide hedge program, you should agree there is a net profit after hedging expenses/losses are counted. If I recommend buying a put, and it costs 20 cents plus commissions, my goal is to offset that expense with a better cash sale.”
Uden predicts the influence of market advisers will only grow in the future, making the right selection paramount. “Farmers today often know their breakevens,” he says. “As they pass land onto their kids who do not farm, those kids will want help managing crop assets. They have not been exposed to marketing grain before, and market advice will be required to succeed.”
CHARACTERISTICS OF A GOOD MARKET ADVISER
Diane Hanekamp, manager of strategic marketing for FamilyFarms Group, says a good market adviser should have the following attributes:
#1 a thorough understanding of a farmer’s financials, including accurate direct and indirect costs, crop acreage and yield estimates, cash-flow requirements, family living demands, crop-insurance parameters, grain storage and transportation
#2 at least five years of market experience with the crops they advise on, as well as experience with both bullish and bearish cycles
#3 regional expertise in cash markets
#4 fundamental and technical expertise with using trading instruments and the ability to ascertain their financial appropriateness
#5 access to resources that provide solid peripheral analyses, such as weather, international markets and currency
#6 a non-judgmental perspective regarding previous market actions (If decisions were counterproductive, the adviser will acknowledge the farmer had a reason to make that decision at that time, bring those transactions into the entirety of the outlook and move on.)
#7 shows a balance between demonstrated expertise and humble acknowledgement that he/she can’t see the future (A crop sales plan unfolds, in part, as the crop year develops.)
#8 a willingness to admit when something was wrong–despite lengthy analysis — in order to lessen the financial damage, correct or modify the plan, and move ahead
#9 embraces the mindset of protecting profitability first and foremost (Only after that’s done should the adviser customize a plan for a farmer to participate in whatever upside may yet develop. Avoid advisers with a “churn and burn” short-term trade mentality.)
Iowa State Tips Still Hold Sage Advice:
While Iowa State University’s (ISU) recommendations about how to select a market advisory service were last updated in 2008, University of Illinois emeritus ag economist Darrel Good still stands by it. Here are some of ISU and Good’s suggested steps to narrow down your choices:
#1 Select the firm that best fits your needs. Get suggestions from neighbors, lenders, elevator managers and Extension personnel.
#2 Ask about the stability of the firm, how long it has been in business, the size of its research department and whether its primary emphasis is grain or livestock marketing, or both. Find out where the main geographical clientele base is located. Market conditions and strategies may differ depending on location and local conditions.
#3 Call each firm to discuss services offered, gather their philosophy about risk management and see whether you communicate well with them. Ask for a written record of marketing recommendations for recent years. Firms should not be reluctant to share this.
#4 Ask the service for recent samples of its market newsletter so you have a good idea of whether its advice is clear and easy to understand. Acquire names of farmers in your area who receive the service to ask them about the firm’s strengths and weaknesses.
#5 Inquire about costs, but note that selection of an advisory service shouldn’t be based just on cost but also on types and quality of information and advice available.