1. 2005 RME - Executive Marketing1 Executive Marketing: Developing a Marketing Plan Scott A. Mickey

2. 2005 RME - Executive Marketing2 Seminar Purpose Develop a written marketing plan based on producer’s financial needs Operating costs Cash flow requirements Planting intentions

3. 2005 RME - Executive Marketing3 Seminar Topics & Tools How Healthy is your Business Fundamental Analysis Comparing Crop Insurance Products Marketing Simulation Game Target Price Analysis Putting the Plan on Paper Quarterly Updates

4. 2005 RME - Executive Marketing4 How Healthy is Your Business Assess the financial condition of the business Recent Balance Sheet

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6. 6 Assessing Financial Position 1. What is the ratio telling us? 2. How has it changed from last year? 3. Will it impact marketing decisions?

7. 2005 RME - Executive Marketing7 Fundamental Analysis Where prices may go When

8. 2005 RME - Executive Marketing8 Fundamental Analysis 1.Project Ending Stocks 2.Estimate US average cash price 3.Add average US basis to cash price 4.Determines expected Futures price 5.Adjust to HARVEST futures price 6.Evaluate years with similar ending stocks

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10. 10 Fundamental Analysis: Projecting Pricing Opportunities Corn Projected ES1753 Expected US cash price$2.00 + Average basis$0.20 = Expected Dec Futures$2.20 + Adjust to HARVEST futures-0.10 = Expected HARVEST futures$2.10

11. 2005 RME - Executive Marketing11 Fundamental Analysis: Projecting Pricing Opportunities Evaluate Similar Years19992004 Beginning Stocks1787958 Ending Stocks17972010 High Price250342 MonthMarApr Low Price184193 MonthDec

12. 2005 RME - Executive Marketing12 Crop Insurance Understand available products Production guarantees Revenue guarantees Use CRC for Market Trades

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15. 2005 RME - Executive Marketing15 Crop Insurance - Comments Is CRC a better way to go? What about the price in between the base period and harvest period?

16. 2005 RME - Executive Marketing16 Coulda

17. 2005 RME - Executive Marketing17 Marketing Simulation Game Dr. Art Barnaby’s corn trading game S/D reports Futures / Options / Cash Crop Insurance Review of price enhancement strategies

18. 2005 RME - Executive Marketing18 Target Price Analysis Discover “successful” prices Target = OP + Extra B/E = OP Cash Flow = OP - WC Use producer’s actual crop budgets

19. 2005 RME - Executive Marketing19 Setting Commodity Target Prices Step 1--Determine operating profit requirements Interest + Family living & taxes + Principal payments = MINIMUM OPERATING PROFIT + Allowance for new assets & uncertainty = OPERATING PROFIT GOAL

20. 2005 RME - Executive Marketing20 FLOID Family Living & taxes Operating expenses Interest Debt (principal)

21. 2005 RME - Executive Marketing21 Calculate Operating Profit Dec-05Per Acre Family Living$65,000$33 + Interest28,50014 + Debt (Principal)58,50029 = Min Op Profit$152,000$76 + New Assets50,66725 =Op Profit Target202,667$101 2,000 crop acres

22. 2005 RME - Executive Marketing22 Setting Commodity Target Prices Step 2--Calculate TARGET prices. * Covers FLOID + Uncertainty Operating Cost + Operating Profit Goal = Calculated Gross Revenue - Non-Crop Revenue = Crop Revenue Required / Expected Yield = TARGET PRICE

23. 2005 RME - Executive Marketing23 Calculate Target Price CornCotton Operating Cost$222$399 +Op Profit Target101 =Calculated Gross$323$500 -Non Crop Revenue-19 =Crop Revenue Required$305$482 /Expected Yield98 bu750 # =Target Price$3.11$0.64

24. 2005 RME - Executive Marketing24 Putting the Plan on Paper When How What Quarterly Updates

25. 2005 RME - Executive Marketing25 Executive Marketing: Update Acreage Report 6/30/04 General Comments These comments apply to the July/August time period. The FLOID price covers Family Living, Operating expenses, Interest and Debt. The FLOID price results in no change in net worth. The “Duck” price covers all of “FLOID” plus a 25% cushion. A Duck price increases net worth. Assess your “FLOID + Duck” price relative to market. If you can achieve this price level, use futures or cash forward contracts. Assess your “FLOID” or breakeven price relative to market. Try to achieve this price level using put options. This will protect family living and debt service needs while leaving the upside open. Corn – CZ04 Comments: Dec 04 & 05 are both in top 1/3 of historical prices. Historical high yields needed on increased acres to maintain current Ending Stocks. A decrease in yield could be explosive. Chart gaps DOWNSIDE @ 2.58, UPSIDE @ 2.72, 3.05gaps DOWNSIDE @ Actions: If no crop is priced, get to 50% priced now. Price in September or December based on your storage situation and risk tolerance.

26. Hope is much more than a mood. It involves a commitment to action…What we hope for should be what we are prepared to work for and so bring about, as far as the power lies in us. John Polkinghorne, physicist, Anglican priest and author of The God of Hope and the End of the World

27. 2005 RME - Executive Marketing27 Thank You! Scott Mickey smickey@clemson.edu PO Box 237 Sumter, SC 29151 803 775-4580 800 881-7518 fax