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IAG Blog Article:

Farmers Need To Be Traders

Farmers Need To Be Traders

December 3, 2018 | |

Here at IAG, we know farmers wake up with a market position every day. Most traders have a choice whether to take a position. Farmers do not have that choice. They have a position that needs attention and management. It doesn’t mean they have to be active traders. It requires them to be active managers, and proactive managers.  I believe most farmers inherently understand the position, but they choose to deal with the position in a myriad of methods. That myriad creates the vast difference in marketing results experienced by the farm population. Results can be improved if they approach the position similar to a money manager or professional trader and follow these basic rules:

  1. Manage the money
  2. Design a Plan B before a Plan A
  3. Monitor continuously.

Trading Defined

Being a trader or money manager does not mean making regular transactions. A good plan has as few trades as possible. Ideally, the position is established and then liquidated as an exchange for physical. In order to keep the transactions at a minimum, the position can not be split into more than two or three pieces. That’s correct, more pieces requires more time to execute and a greater likelihood the plan will not be fully executed. If your plan creates an active trading schedule – daily or weekly trades – this is not an effective or sustainable plan.

Manage The Money

Managing the money means looking at the production in currency – dollars, real, or euro – not in terms of bushels or tons. The corn market has regular daily moves of five cents, ranges in even slow corn markets are twenty cents. Five cents on a million bushels is $50,000, twenty cents equals $200,000 (not higher math). The twenty-cent range represents a large portion of the farmers annual income. Moving the focus to currency moves the focus to becoming a fiduciary that manages the margin. Establishing targets and plan execution is easier if we are focused on revenue.

Creating A Plan B

A majority of farmers have targets, the difficulty is executing when the market reaches the target. In my experience, farmers with a strong Plan B are the most effective marketers, because they are the most effective at execution. Where producers marketing plans vary the greatest is in the Plan B. What form and how strong is the Plan B required to allow a producer to sell 80-100% of their crop at one target in one transaction? The Plan B ranges from, there is next years crop to sell, to I need full option coverage. Each individual has to create a unique Plan B – this where the marketing battle is won and lost.

Monitor Continuously

What am I monitoring? The original plan requires parameters based on market assumptions, and recourse for when those assumptions are no longer accurate. Monitoring means checking to assure the original assumptions are still correct. Adjustments within the plan should be made to the Plan B, not the basic sales targets. Monitoring should be done daily with weekly management team meetings.

The best plan is the one that is executable. There is much more to designing an executable plan than what is discussed above. IAG will add more detail to the three rules in future blogs. Be sure to follow us on social media to receive alerts of our new posts. TWITTER, FACEBOOK, INSTAGRAM, LINKED-IN

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