Marketing Risk
In an ever-expanding global market predicting end of season price can be a tricky (impossible?) task. How many times have you thought, “if only I had known that the price of corn would be so low I would have planted half the acreage that I did!”? In addition to price fluctuations, marketing risk can also involve loss of market due to closing of a processing plant, or farmer’s market.
Strategies to deal with marketing risk include:
* Developing a marketing plan: How much risk can you afford? Is there a market for the crops that you are growing? What marketing tactics will you use to ensure that you get a good price for your crop? These are all questions that should be answered prior to any planting or investing in livestock, etc. You may want to consult professionals such as futures brokers, elevator operators, financial planners, and farm consultant (such as the Farm Viability Program) to help develop your marketing plan.
* Joining a marketing cooperative: Individuals farmers do not have much control on the markets, but groups of farmers joining together into a cooperative can gain bargaining power and improve competitiveness of the operations. This is also due to reduced processing costs that come from pooling the product of many farm operations. New markets that desire larger quantities of product than one farmer can provide are also opened up as a result.
* Direct marketing: Selling directly to your consumers whether through a farmstand, farmer’s market, mail-order, pick-your-own, or farm shares, enables you to keep a larger portion of the final sale price than if you are selling wholesale. Direct marketing does, however, require additional management and skill in customer service. A huge part of making direct marketing work for you is ensuring a great experience for your customers so that they will keep coming back. See the links below for more information on direct marketing and organizing a successful CSA.
* Market Contracts: There are a number of different types of marketing contracts that can be used to help stabilize prices. Click here to learn more about marketing contracts.
* Storage: If the market price for your product at harvest is low one option is to store that crop in hopes that the price will rise. This can be risky as there is no guarantee that prices will not drop instead of rising, and for some crops there is also the risk of spoilage during storage.
* Adjusted Gross Revenue or Adjusted Gross Revenue-Lite Insurance.
Marketing risk links:
“Community Supported Agriculture: Organizing a successful CSA” by Cathy Roth and Elizabeth Keen, UVM Extension SARE Bulletin #2, 1999.
"The Challenge:Reducing Your Exposure to Marketing Risk"
"Understanding Dairy Markets" website
"Farmer Cooperatives in the United States", USDA Rural Business Cooperative Service, 1990.
"Direct Marketing of Farm Produce" by Vern Grubinger, University of Maine Cooperative Extension Bulletin #7143.