Center of Excellence Marketing Strategy by igo14967

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									      “How to Market with Strategy and Discipline”
                         Center for Dairy Excellence
                        Mastering the Dairy Business
                          Tuesday March 23, 2010

    Scott Stewart
    Mike Hogan




Discussion Outline


                  Today

      Dairy Marketing History
            How did we get here?
            Where are we now?


      Strategic Marketing
            What does it look like?
            Key considerations


      --------- End ---------




                                                       1
Fundamental Beliefs


               History has taught us important (and
               sometimes painful) lessons

               Volatility is here to stay – dramatic price
               swings are the new normal

               Marketing can be done well and it requires a
               strategic approach




                                                                  3




  Dairy Marketing History
  How did we get here?
  Where are we now?




                                                              4




                                                                      2
 Economic Background

                                         What happened?
                                              Cheap money created heavy investment and lofty demand expectations (carry trades)
                                              Once that level of borrowing could not be sustained…
                                              The world went broke!
                                              New carry trade is in the US Dollar…

                                         Economics
                                              Supply/Demand of Commodities from underlying fundamentals -- Oceania issues
                                              Supply/Demand of Commodities from auxiliary fundamentals --“Good Times” demand
                                              Boom/Bust cycle

                                         Demand destruction
                                             Occurred in 2009, especially in Milk, Hogs, and Ethanol
                                             Back to normal supply/demand curve going into 2010


                                                                                                                                                                5




                                                  Corn, W heat & Oilseeds W orld Planted Acreage vs Total Use

                                         2,200K                                                                                    2,400K
                                                       Source: Hightower
                                         2,000K                                                                                    2,200K
Total Planted Acreage (M illion Acres)




                                         1,800K                                                                                    2,000K
                                         1,600K                                                                                    1,800K
                                                                                                                                             Total U se (M T)




                                         1,400K                                                                                    1,600K
                                         1,200K                                                                                    1,400K
                                         1,000K                                                                                    1,200K
                                          800K                                                                                     1,000K
                                          600K                                                                                     800K
                                          400K                                                                                     600K
                                          200K                                                                                     400K
                                            0K                                                                                     200K
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                                             Whe at    Corn   Oil Se e ds   Proje cte d Harv e ste d   Total Usage   Proje cte d Total Use



                                                                                                                                                                6




                                                                                                                                                                    3
7




    4
          Milk / Feed Price Ratio

                                      Milk-Feed Ratio 1985-2009

               5


              4.5


               4


              3.5
Ratio Value




               3


              2.5


               2


              1.5


               1
                   85

                   86

                   87

                   88


              Ja 9
                   90

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                   92

                   93

                   94


              Ja 5
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              Ja 8
                   99

                   00


              Ja 1
                   02


              Ja 3
                   04

                   05


              Ja 6
                   07

                   08

                   09
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                   9




                   9




                   0



                   0




                   0
                n-

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              Ja

              Ja

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              Ja

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              Ja

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                                                                                                  9




          Where are we now?


              Starting to see some positive development
                    Cow numbers are lower
                    Total Cheese disappearance is better than last year and the 5 year average
                    Big picture cycle has potential to turn the corner


              Worries?
                    Butter is not disappearing as fast as cheese or the 5 year average
                    Prices are still at or below breakeven on front month contracts




                                                                                                 10




                                                                                                      5
9400
                         US Milk Cows on Farm for all 50 States
                                              2008          2009



9350




9300




9250




9200




9150




9100




9050




9000
            Jan    Feb     Mar   Apr    May          Jun      Jul         Aug     Sep    Oct    Nov    Dec




                           Total Cheese Comm. Dis. Comparison

          950.00




          900.00
Mlin ls
ilos b




          850.00




          800.00




          750.00


                                       5 YR AVG                      2008                2009
          700.00
                    JAN    FEB   MAR   APR      MAY        JUN      JUL     AUG    SEP   OCT    NOV   DEC
                                                            Month




                                                                                                             6
                               Butter Commerical Disappearance
                                  5 YR AVG               2008               2009
           190.0



           170.0



           150.0
Ml in ls
 ilos b




           130.0


           110.0



           90.0



           70.0
                   JAN   FEB    MAR   APR    MAY   JUN   JUL    AUG   SEP   OCT    NOV   DEC
                                                    Month




           Critical Questions




                     Information is great, but what do you do with it?

                     How do you make marketing decisions to affect
                     your operation in a positive manner?




                                                                                           14




                                                                                                7
Yes it can




  Marketing can be done well!!!

  It pays to do it well!!!




  Strategic Marketing
    What does it look like?
    Key principals?




                                  16




                                       8
What does strategic marketing look like?


               Minimize separation between your average
               price and market price during bull markets




   Price




                                                                   Maximize separation between your average
                                                                   price and market price during bear markets
                    Market Price
                    Your Average Price

                                                            Time

                                                                                                                17




Key Principals


      1.   Base your decisions on strategy – not outlook

      2.   Be positioned for the unexpected

      3.   Using futures and options is a necessity

      4.   Focus on building a weighted average price for your milk

      5.   Have the discipline to execute



                                                                                                                18




                                                                                                                     9
     Prior Planning Prevents Poor Performance

         We Pre-Plan:                                        Strategy Choices
                                                              ∗   Futures
     ∗   Entry Signals
                                                              ∗   Options
     ∗   Entry Points
     ∗   % Hedge
                                                              ∗   Cash Contracts
     ∗   Exit Signals
                                                                   ∗  Cash sale delta = 1
     ∗   Buy Back Points
                                                              ∗   Cash Sales
                                                                   ∗  Basis Contract
                                                                   ∗  Hedge to Arrive
                                                                   ∗  Forward Contract




              Scenario Planning
We do not focus on where prices
might go – rather, we prepare you with strategies for what
the market may do.
                do




                                                                                            10
The scenario for great marketing!




                                  Outlook
                                   20%




                                                     Strategy
                                                       80%




What to do?


  Establish decision criteria
       When – is a Good time to Buy/Sell?
       Where – is the Right price to Buy/Sell?
       How – do I decide what hat tool to use?


  Key notes:
       Every strategy decision that is made today will affect your average price for tomorrow
       No strategy decision is an independent one


  What does the market move mean for your average price?
       What if milk goes $2.00 higher?                                            Scenario
       What if milk goes $2.00 Lower?
       What if milk goes $5.00 higher?
                                                                                  Planning
       What if milk goes $5.00 lower?



                                                                                                22




                                                                                                     11
When – What month to Buy or Sell?


                                      Time?




              Seasonal’s?                                    Cycle?




                                                High Cycle            Low Cycle
     Normal                 Counter
                                                   Point                Point




                                                                                  23




Where – What price to Buy or Sell at?




                                      Price?




        Technical                 Fundamental                    Money
        Influence                  Influence                   Influence




                                                                                  24




                                                                                       12
 How – What tool to Use?


                                            Marketing



                      Hedging                                                Cash



        Futures                         Options                       Forward       Minimum
                                                                     Contracting      Price



                                                                    Ratio
Stops    Objectives             Puts         Calls       Spreads
                                                                   Spreads




                                                                                              25




 What about a combination?


                                             Marketing



                      Hedging                                      Cash
                                                                    Z%
                                              Options
                       Futures                  Y%                    Forward       Minimum
                         X%                                          Contracting     Price



                                                                    Ratio
Stops    Objectives              Puts        Calls       Spreads
                                                                   Spreads




                                                                                              26




                                                                                                   13
$14.00 Milk


    What if Milk
     drops to
       $10?                                                  What if Milk
                                                              rallies to
                                                                $18?
                                    Scenario
                                    Planning


           What if Milk
              hovers
           around $14?

                                                                            27




Lets try some different scenario’s

  Ask the following questions as we walk through the next few slides:

       How does selling affect a downturn?
       How does selling affect an upturn?

       Which one is better?

       IS there a better way?

       Do we need more tools?




                                                                            28




                                                                                 14
$10.00 Milk




              29




$18.00 Milk




              30




                   15
Better Solution

  Set up the classic win-win scenario
  Get more milk going in the direction of the trend
        Which way will the market trend?
        How much to do?




                                            70/70*

  *for illustration purposes only


                                                      31




The set-up

  What does the risk profile look like using a
  combination of tools?
  Here is a simple example:
        Sell 30% of the cash production;
        currently at $14.00
        Buy 40% $14.00 put options
        Leave 30% of production open (unpriced
        and uncovered)




                                                           16
Down Market




              33




Up Market




              34




                   17
Fence 100% using a $14.00/$18.00 for 30 cents




                                                              35




Plans B through…

  You implement strategy A then…

       You eliminate or control risk in a certain direction


  What if the market moves against you?

       Now have a defined area of focus –”The Hole”
       If you have a hole you…


                                                 Plug it!




                                                              36




                                                                   18
What does strategic marketing look like?


            Minimize separation between your average
            price and market price during bull markets




   Price




                                                                Maximize separation between your average
                                                                price and market price during bear markets
                 Market Price
                 Your Average Price

                                                         Time

                                                                                                             37




Golden Rule of Strategic Marketing




             Marketing done well is about
                     what you do
              not about what you know.



                                                                                                             38




                                                                                                                  19
Become an expert or hire one…then get started!


  Marketing takes time, effort, discipline, and knowledge

  Going it alone? Know your strengths and limitations

  Hiring an expert? Find one that…
      Is not driven by his or her market opinions
      Has the experience to envision all possible scenarios of what the market may do
      Strategically prepares you to act no matter what the market does
      Helps you maintain discipline in decision-making
      Is an accountable and trustworthy professional



                                                                                            39




Stewart-Peterson Overview


  Who we are:
      Commodity consulting and marketing services firm
      Offering opportunity and risk management services for grain and dairy producers
      Since 1985, we have built our client base on two main philosophies of business:
       √   Strategy
       √   Discipline


  What we do:
      By focusing on a strategic disciplined approach to farm marketing, we help you gain
      confidence in your marketing and take it to the next level.

      We do NOT focus on where prices might go (outlook) – rather, we prepare you
      with strategies for what the market does. Having strategies in place AND the
      discipline to carry them out are key elements of successful marketing.


                                                                                            40




                                                                                                 20
Stewart-Peterson Overview


  How we do it:

       Provide an objective assessment of your marketing

       Educate you on farm marketing principles

       Help you become disciplined and reduce your stress

       Earn your trust by addressing your specific marketing constraints

       Customize strategies to your operation




                                                                           41




Resources available:
  Industry Market Update (e-newsletter)
  e-book: Get Started Marketing Well
  Gain Marketing Confidence kit
  New Times, New Rules:
  Take Control of Your Farm Marketing
  Educational videos



                              Stewart-Peterson, Inc.
                              stewart-peterson.com
                                  800-334-9779




                                                                                21

								
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