By DAN ESHELMAN
For The Valley News
The necessity for agricultural producers to develop and implement an effective marketing plan was stressed during a seminar in Clarinda Friday, Jan. 31.
“Most markets will give you an opportunity, but you’ve got to be ready,” said Steve Knuth, founder and CEO of AgWest Commodities, a firm based in Holdrege, Nebraska. “You’ve got to expand your horizons and be willing to step in when you have that opportunity. Marketing should be a process, not just an event.”
He reminded attendees at the seminar, which was sponsored by Bank Iowa and held at Wibholm Hall on the Page County Fairgrounds, that commodity markets “go up, and they go down. We just have to be sharp enough when they’re up to do something.”
The key to success in marketing, Knuth said, is for a producers to formulate a plan early, about a year ahead of a harvest. They need to establish a projected “cost of production” for their particular operation, as well as assess market structure and fundamentals to determine a potential range and target for prices.
Then, he said, producers must “assess market risk and stress test your operation in a worst-case scenario.” They must also set operational goals and build plans accordingly.
Once a plan is in place, the next step is to embark on the action phase of the marketing strategy. Basic merchandising skills come into play at this point, Knuth said, such as studying “market carry spreads” and “using history and seasonal strength.”
Other components of this phase, he said, are “shopping for best basis versus freight differentials and maintaining downside price protection on ‘at-risk’ production.”
Knuth told attendees that “if you don’t have a plan, you don’t have anything to execute. And if you build the best plan in the world, and you can’t be disciplined to go execute it, you’ve wasted all your time to build the plan. They’re absolutely hand-in-glove, but you’ve got to start with a plan.”
He said some reports have estimated that fewer than 15 percent of American farmers are using a structured marketing plan. The consequence is that often farmers do not sell their products when prices are high because they fail to enter the market to take advantage of the situation when they could have.
“What is the one most important thing concerning production marketing?” he asked seminar attendees, then provided the answer: “You’ve got to be able to make a decision. If you can’t make a decision, you’re just floating around, not getting anything done.”
Knuth termed this condition “paralysis by analysis.”
Along with discussing the importance of planning, Knuth reviewed the status of soybean and corn markets, and what the outlook might be for those commodities in the year ahead.
Ending stocks in 2019 for soybeans in the United States were down considerably from the previous year. But a smaller decrease occurred in world stocks. So there is “no shortage of the grain,” Knuth said. New crops from South America will add to the total as well.
“Soybeans should benefit from a China agreement,” he said, “but when is the big question.”
Weather issues will also have an impact on supply, but Knuth urged producers to “have your 2020 plan developed with orders working.”
Regarding corn, American and world stocks have been trending downward. They are “headed in the right direction,” Knuth said, while adding that there is “still a large excess supply.”
He cited several factors that are expected to influence markets this year -- the spread of the coronovirus; trade agreements; ethanol waivers; the outbreak of African swine fever; and the 2020 general election in the United States.
“There’s plenty of uncertainty to go around in 2020,” Knuth said. “But there is opportunity in almost every market every year to do something.”
Also appearing at the seminar was Steve Ferguson, specialist with the Iowa Agricultural Development Division of the Iowa Finance Authority (IFA). He discussed programs available to new or already-established producers.
The Beginning Farmer Loan Program is designed to help with the purchase of land, depreciable machinery or equipment, and breeding stock, though not feeders. Funds can also be used for new farm improvements and for upgrading existing buildings. The loan cannot be used for operating expenses or to refinance previous purchases.
The IFA “does not provide funds,” Ferguson said. “We issue a tax-exempt bond to facilitate the financing for the purchase of ag assets.”
A lender or contract seller who obtains the bond, he said, “provides financing at a reduced interest rate because the interest they receive is tax-exempt.”
The loan maximums are $552,500 for land and $250,000 for improvements.
With the Beginning Farmer Tax Credit Program, current agricultural asset owners are encouraged to lease land, equipment and facilities to qualified beginning farmers.
An asset owner receives tax credits of different amounts on cash rent, crop share or flex lease arrangements.
Ferguson said a lease term must be between two to five years, but an asset owner is limited to 10 years in the program. The maximum tax credit annually for an owner is $50,000.
Arrangements covered by the program must include land, he said, but they “may also include equipment or buildings.”
A Loan Participation Program available through IFA, Ferguson said, “allows [a] lender to finance more beginning farmer projects and assist with down payment funds.”
The maximum amount is 30 percent of the cost, up to $200,000. An interest rate is locked in at the time of loan approval, and a balloon payment at 10 years is scheduled. The amortization depends on the purpose of the loan.
The intent of the programs, Ferguson said, is to give new farmers an opportunity to acquire land and expand their operations, and to provide lenders and asset owners with an option for reducing their income taxes.
U.S. Sen. Joni Ernst had been scheduled to participate in the seminar. She was unable to attend because she was in Washington, D.C., for the impeachment trial of President Donald Trump.
Ernst sent a short video in which she commented favorably on the signing of a trade agreement by the United States, Canada and Mexico.