The beginning of a new year is a good time to reflect on past accomplishments and establish goals for the future. Often, however, reflections on the past become nothing more than beginning the tax filing process. And all too often, goal setting is one of those New Year's resolutions that are soon forgotten.
Everyone involved with agriculture should find plenty to reflect on from 1998. Record per acre wheat yields were obtained in Oklahoma and Texas, even though wheat harvest came in the middle of the driest April to October on record for many areas. While cash wheat prices at harvest plummeted to $2.60 per bushel and below, there were cash contracting opportunities above $3.75 per bushel for the 1998 crop. This is a difference of about $45 per acre on Oklahoma's average yield of 39 bushels per acre!
Cattle prices also fluctuated widely during 1998. The December 1998 Live Cattle contract traded from more than $74 per hundred weight to less than $60 per hundred weight a per head difference of over $150. The October 1998 Feeder Cattle contract traded from above $80 per hundred weight to near $65 per hundred weight a per head difference of more than $120.
Did you miss the opportunity to price your cattle or wheat at the upper end of the price ranges mentioned above? If you did, you can rest assured you have plenty of company. The miserable reality is that roughly two-thirds of all grain is sold in the bottom one-third of the price range for the marketing year. Similar cattle data is not available but judging from reported losses and disgruntled attitudes, more cattle evidently wind up priced in the lower end of the yearly range than in the upper end.
Why does this happen? Marketing consultants generally agree that agricultural producers let their emotions and a lack of discipline interfere with making sound pricing decisions. Holding out for the ego satisfying "highest price" can lead to missed profit opportunities.
How can these pitfalls be avoided? Begin by making a written marketing plan. The plan should detail how you will recover production costs and a realistic profit from the livestock and crops you produce. The marketing plan should consider the fundamental factors of supply and demand. Having a written plan will help you keep your wits and avoid the emotional turmoil that rising or falling markets tend to create. You can't control the price level of the commodity you produce and it is virtually impossible to predict agricultural prices. But you can control when and how you price your production. The tools exist to adjust the price to your time frame, your cash-flow requirements and your risk tolerance.
Management consultant Peter Drucker is credited with the statement, "The best way to predict the future is to create it." The agricultural executives of tomorrow will strive to create the future of their farm/ranch businesses by tying down prices of inputs and production as far in advance as possible. They will see low prices as opportunities to price future production inputs rather than as reasons to lobby for more government assistance. The farm business managers of tomorrow will think in terms of percentage return on investment and profit per acre, rather than focusing on just price per bushel or dollars per hundredweight.
The ex-farmers and ex-ranchers of tomorrow will remember how much they used to enjoy driving a tractor and feeding the cows. And they will probably remember the anxiety they felt while holding out for the highest price.