Bret Oelke Farm Management Coach Innovus Agra LLC We are Farm management coaches Mission To search for and develop opportunities that allow our customers to achieve their goals ID: 781678
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Slide1
Creating a Competitive Advantage with Improved Management and Marketing
Bret Oelke - Farm Management Coach
Slide2Innovus Agra, LLC
We are:Farm management coachesMission:
“To search for and develop opportunities that allow our customers to achieve their goals”
Slide3Objectives
Identify management activities that can improve profitabilityOverview of current market
Review strategies that can help achieve or maintain profitability
Slide4Areas of Farm Management
FOR THE FEW, NOT THE MANY. NO DILLY DILLY
Production ManagementFinancial and Business ManagementRisk and Margin ManagementSome management tasks fall into more than one category
Slide5High Value Management Activities
Cost managementProduction and business managementEfficiency improvement
Business managementRevenue managementRisk and margin management
Slide6Production Management
Be an outstanding producer of what you growBecome an elite growerAverage
Above averageElite growers
Slide7Cost Management
Costs (expenses)OverheadBuildings, storage, P&C and liability insurance, utilities, professional (consultants, advisors)
What can be done here?OperationalMachinery, labor, crop and livestock inputs
Slide8Cost Management
Costs (expenses)Operational
Machinery, labor, crop and livestock inputs What can be done here? Buy better (be opportunistic), maximize input discounts
Minimize transaction costs, extract costs from the value chain
Slide9Cost Management
What other factors are involved?Input purchasing decisionsProduct types and rates
Bundling or not bundlingImpact and cost of “timeliness'”
Slide10Efficiency Improvement
“Right sizing”Are you fully utilizing your machinery and labor resources?How can we improve in this area?
What can I outsource?
Slide11Efficiency Improvement
If you are not currently “right sized” it will be a difficult journey to get thereOptimal use of available labor, machinery and overhead
Scale, unit size, crops (livestock) grown, geographic footprint
Slide12Planning
If you do a good job of planning and utilizing planning tools, you can make better decisions in a shorter period of time“It is not the big fish that eats the small fish, it is the fast fish that eats the slow fish”
Slide13Planning
Develop crop and livestock production budgetsMake them interactive so you can quickly do “what if” scenariosHave risk and margin management plans in place in order to take advantage of profitable opportunities
Slide14Risk and Margin Management
Cash, cash forward and HTA (traditional) grain marketers are at a significant competitive disadvantageUnderstand how you can use all of the tools available to improve revenue
REQUIRES CAPITAL (refer to financial management)
Slide15Current Marketing Situation –Spring Wheat
Slide16Current Marketing Situation –Spring Wheat
December 2019 MGEX Wheat chart
Well below cost of production
Quality issues in some cases with falling numbers problems in later harvested wheatPoor exports due to trade issues and a strong US dollar
Slide17Current Marketing Situation –Spring Wheat
StrategiesSell poor quality wheat, store good quality wheat if possible
Buy March 2020 futures and set sell targets
Slide18Current Marketing Situation –
Spring Wheat
Retracements
1/3 = $5.58
½ = $5.87
2/3 = $6.14
Full = $6.73
How achievable are these targets?
It depends on quality wheat supplies, value of dollar, soybean and corn price movement
Slide19Current Marketing Situation –Soybean
Slide20Current Marketing Situation –Soybean
We have not gotten a technical buy signal at this point in time
We should all be aware of potentially poor soybean yields nationwide
As of last week we had 10.4 million acres that had not flowered yet
Very late planting
Slide21Current Marketing Situation –Soybean
StrategiesSell poor quality soybeans
Store old and new crop leftovers if possibleBuy January or March futures when we get a buy signal (or ramp into buying if you believe early harvest will result in a rally)Sell in increments at pre-specified targets
Slide22Current Marketing Situation –Corn
Slide23Current Marketing Situation –Corn
Near normal trading range for December corn
Watch the gap (sell?) Set price targets and be aware of basis opportunities
Yields and harvested acres are very much uncertain at this point
Poorest crop conditions since 2011, 2012, 2013 average yields those 3 years = 143
Very late planting
Slide24Risk and Margin Management
Understand and utilize all of the tools available to manage price risk and to extract as much as you can (while taking calculated risks) from the market placeBecome a better than above average price risk manager
Slide25Risk Management, Margin Management, Marketing Plan
How many of you have a WRITTEN
marketing plan for old crop and new crop production?IF you do NOT, how do you make decisions on when
to market?Lenders, how many of you
REQUIRE
your customers to present a written marketing plan along with their other financial documents?
Slide26Types of Risk Management (Marketing) Plans
Inactive
ReactiveOveractiveProactive
Slide27Types of Risk Management (Marketing) Plans
Inactive
This is a completely emotion driven lack of a planGreed, Fear, Frustration, V
ery difficult to explain to providers of capitalFrom late 2006 until the middle of 2014 this worked just fineIf this is your strategy today your business is at risk
Slide28Types of Risk Management (Marketing) Plans
Reactive
There is still some emotion involved in this type of marketingGenerally the reactive marketers react to negative situations and miss some of the positive We utilize some reactive components in our proactive plans (more on this later)
Slide29Types of Risk Management (Marketing) Plans
Overactive
In and out of futures positionsMore of a trader, less of a hedger7 brokerage accounts?
Slide30Types of Risk Management (Marketing) Plans
Proactive Risk Management Plans
Helps remove some of the emotion in managing price riskAllows providers of capital to have more confidence in your business probability of successIs easier to implement because a decision making process is in place prior to price movement that can cloud judgement
Slide31A Proactive Risk Management Plan
Action StepsKnow
your cost of production of the crop(s) that you will be marketingDecide which price risk management tools you are willing to use in your plansUnderstand seasonality in futures prices and in basis
Set price targets that take into consideration your costs and expected market prices Build in some flexibility in order to allow for some upside price movement
Slide32A Proactive Risk Management Plan
Action Steps
Plans must be written and shared in order to assure implementationMake sure there is adequate capital available in order to implement the plansEXECUTE THE PLAN
Slide33A Proactive Risk Management Plan
Price Increments – Survey the landscape, what are your expectations
Price Targets – How do you arrive at these?Decision Dates – Reports, crop insurance, futures seasonalityMinimum Price – Your cost of productionTools Utilized – Exchange based and buyer contracts
Slide34A Proactive Risk Management Plan
Adequate risk management capital is required to fully implement your risk management plans
We operate in a three crop year at a time risk management time frame – Old crop (2019) New crop (2020) New crop (2021)In most cases we rely heavily on end user contract for old crop and the current year new crop but use futures contracts exclusively when hedging a year or more ahead.We encourage growers to separate production and risk management capital
Slide35A Proactive Risk Management Plan
Please remember that all of these plans should be actively managed, constantly reviewed, modified and improved upon in order for you to meet your risk management and business management goals
Risk management (as well as production and business management) are team activities! Make sure you build a great team!
Slide36Bringing It All Together
What are you willing to do (change) to achieve or maintain success?Be a planner –Operational plans; production plans; financial
plans; risk management (marketing) plans
Slide37Bringing It All Together
Innovation does not come from a place of comfort
Calculate, critically think and communicate Flexibility, speed and process now trumps scale – still need to be operationally efficient, scale still needs to be balanced, and your operation needs to be right sized
Slide38Bringing It All Together
Understand your financial strengths and weaknesses, continually drive for improved efficiency, benchmark, compare, and improveDevelop a long term vision, look forward for opportunities
Slide39Thank You!
Please thank the sponsors for this professional development opportunity!
Bret Oelke – Innovus Agra, LLCboelke@innovusagra.com218.770.2428