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Marketing and Management Marketing and Management Avoid Playing Avoid Playing Eeny, Meeny, Miny Mo Eeny, Meeny, Miny Mo With Your Future With Your Future Kevin Bernhardt Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW-Extension, Center for Dairy Profitability, and UW-Platteville UW-Platteville March 17, 2010 March 17, 2010

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Page 1: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Marketing and ManagementMarketing and ManagementAvoid Playing Avoid Playing

Eeny, Meeny, Miny Mo Eeny, Meeny, Miny Mo With Your Future With Your Future

Kevin BernhardtKevin BernhardtUW-Extension, Center for Dairy Profitability, and UW-UW-Extension, Center for Dairy Profitability, and UW-

PlattevillePlattevilleMarch 17, 2010March 17, 2010

Page 2: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Take Home MessagesThe Take Home Messages

• Management Matters• Marketing is a part of Management not an

activity that sits in a vacuum by itself– Know Your Market– Have the Right Mindset– It’s the Margin that Counts– Have a Plan and then Adapt

• Think long-run – act short-term

2

Page 3: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

WHEN IT COMES TO WHEN IT COMES TO MANAGEMENT, WE ARE MANAGEMENT, WE ARE

NOT ALL THE SAMENOT ALL THE SAME

MANAGEMENT MANAGEMENT MATTERSMATTERS

Page 4: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

ROROE (mrkt basis w economic depreciation)CDP: 100-250 Cow Dairies in WI (freestall, no pasture, not organic)

-10

-5

0

5

10

15

20

25

2006 2007 2008

Low 25%

Middle 25%

High 25%

Page 5: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

18,000 21,000 24,000 27,000

10 (143,977) (123,977) (103,977) (83,977)

11 (124,977) (102,977) (80,977) (58,977)

12 (105,977) (81,977) (57,977) (33,977)

13 (86,977) (60,977) (34,977) (8,977)

14 (67,977) (39,977) (11,977) 16,023

15 (48,977) (18,977) 11,023 41,023

16 (29,977) 2,023 34,023 66,023

17 (10,977) 23,023 57,023 91,023

18 8,023 44,023 80,023 116,023

5

$137 hay, $4.00 corn, $300 SBM

Production and Price Matter

Page 6: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

-15% -10% -5%23,000

Avg 5% 10% 15%

10 (85,938) (93,206) (101,166) (109,923) (119,117) (128,311)(137,505)

11 (62,938) (70,206)(78,166) (86,923) (96,117) (105,311)(114,505)

12 (39,938) (47,206)(55,166) (63,923) (73,117) (82,311) (91,505)

13 (16,938) (24,206)(32,166) (40,923) (50,117) (59,311) (68,505)

14 6,062 (1,206) (9,166) (17,923) (27,117) (36,311) (45,505)

15 29,062 21,794 13,834 5,077 (4,117) (13,311) (22,505)

16 52,062 44,794 36,834 28,077 18,883 9,689 495

17 75,062 67,794 59,834 51,077 41,883 32,689 23,495

18 98,062 90,794 82,834 74,077 64,883 55,689 46,495

6

Increase in Feed CostsDecrease in Feed Costs

Input Costs Matter

Page 7: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

7

Volatility is a Growing Challenge Class III Prices - 1962-Dec 2009

0

5

10

15

20

Jan-62

Jan-67

Jan-72

Jan-77

Jan-82

Jan-87

Jan-92

Jan-97

Jan-02

Jan-07

Cla

ss I

II/B

FP

Pri

ces

1962-79 1980-87 1988-95 1996-99 2000-2003 2004-2009

Page 8: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

8

Is There More Milk Price Risk Today?C-III Price Distributions (8 year time periods)

0

5

10

15

20

8 9 10 11 12 13 14 15 16 17 18 19 20 21

25 Cent Range, Midpoints Are Shown

Per

cent

Occ

uren

ce

1980-Dec 87 1988-Dec 95 1996-Dec 03 2004-Dec 09

Page 9: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

9

Is There More Milk Price Risk Today?C-III Price Distributions

January

05

10152025303540

8 9 10 11 12 13 14 15 16 17 18 19 20

25 Cent Range, Midpoints Are Shown

Per

cent

Occ

uren

ce

1980-1987 1988-1995 1996-2003 2004-2009

Page 10: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

10

Is There More Milk Price Risk Today?C-III Price Distributions

March

05

10152025303540

8 9 10 11 12 13 14 15 16 17 18 19 20

25 Cent Range, Midpoints Are Shown

Per

cent

Occ

uren

ce

1980-1987 1988-1995 1996-2003 2004-2009

Page 11: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

11

Is There More Milk Price Risk Today?C-III Price Distributions

July

05

10152025303540

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

25 Cent Range, Midpoints Are Shown

Per

cent

Occ

uren

ce

1980-1987 1988-1995 1996-2003 2004-2009

Page 12: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

12

Is There More Milk Price Risk Today?C-III Price Distributions

November

05

10152025303540

8 9 10 11 12 13 14 15 16 17 18 19 20

25 Cent Range, Midpoints Are Shown

Per

cent

Occ

uren

ce

1980-1987 1988-1995 1996-2003 2004-2009

Page 13: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

MARKETINGMARKETING

-Know Your Market-Know Your Market-Mindset-Mindset

-It’s the Margin-It’s the Margin-Planning-Planning

Page 14: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Must be a New Era (Nominal Corn Prices, 1866-2009)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

1865 1885 1905 1925 1945 1965 1985 2005 2025

14

4.30

3.50

2.50

Futures Average (2/9/10): 2010 = 3.78 2011 = 4.12

Page 15: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

15

Class III Prices - 1980-Dec 2009

9

11

13

15

17

19

21

Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10

Cla

ss I

II/B

FP

Pri

ces

1980-04 2004-2009 Avg 80-04 Avg 04-09

Top 25% (80-04) Top 25% (04-09) Low 25% Low 25%

80-03 04-09Average: 11.94 14.69Median: 11.89 14.24Top 25%: 12.54 17.04Low 25%: 11.10 12.27

Page 16: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s This Mean To Your Cash Flow?• The change in total revenue from the top 25th

percentile price to the low 25th for 207 cows at a 22,361 lb average

–1980-2003: $66,521–2004-2009: $220,350

16

Page 17: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

17

Seasonality (Averages)

11

12

13

14

15

16

Jan

FebM

ar AprM

ay Jun

Jul

AugSep O

ctNov Dec

C-I

II/B

FP

Pri

ce

1980-87 (8)1988-95 (8)1996-03 (8)2004-09 (6)

Page 18: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s the Point?

• The long-term average price of milk may have shifted up

• The Volatility of prices around that average have increased– Increased risk of lower prices than average– Increased opportunity of higher prices than average

• Cash Flow and Working Capital management more important

18

Page 19: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

19

Most Important Most Important Slide of the Day is Slide of the Day is

NEXTNEXT

Page 20: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

20

Marketing MindsetMarketing Mindset

Both Forward

Contracted for $18.00

Announced Price Was

$20.07

Cool!I’m getting a great return

on my investment

#@%$^& I lost

$2.07!!!

And could

have had $21.25

Page 21: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

21

My Own Real Life Example

• It’s April 9, 2004– November 2004 Forward Contract is available

at $13.68– December 2004 F.C. is available for $12.90

• That is a top 25th percentile price for both months and well above blue ribbon price.

• Pull the trigger and sell!!!!

Page 22: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

22

My Own Real-Life Example

• As of December 8th, – November announced at $14.89

“LOSS” OF $1.21/cwt.

– December settled at $16.55 “LOSS” OF $3.65

Page 23: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

23

Another Real-Life Example

• It’s July, 2008• The word’s out that milk is going to

$25/cwt. • I slammed my fingers in the drawer at $17,

$18, and $19. • Finally Forward Contracted for next 18

months at $19.91.

Page 24: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

24

Another Real-Life Example

• How much did I pay for feed, fertilizer, and fuel?

• I only did 20% of my production!!

Announced Marketing Gain

Jun 20.25 -.34

Aug 17.32 2.59

Oct 17.06 2.85

Dec 15.28 4.63

Feb 9.31 10.60

Apr 10.78 9.13

Jun 9.97 9.94

Aug 11.2 8.71

Oct 12.82 7.09

Page 25: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

In MarketingYOU WILL BE WRONG

Good producers hate to be wrong!

Good marketers have to get use to being wrong!

25

Page 26: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 1] • July 2008: Input prices at record highs, but

people are talking: – $10-12 corn, $600/ton SBM, – Nitrogen is already at $1,200/ton.

• I’m locking in my Corn and SBM for first quarter 2009 before it gets any higher.

– $8.00/bu corn $430/ton SBM

26

Page 27: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 1] • Still July 2008: March 2009 Milk prices are

great too, but…….. – New Zealand is in a drought, – It’s hot in California, and – Europeans are buying.

• People say milk will get to $25 before it is over.

I’m waiting!

27

Page 28: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 1] • September 2008: Milk prices have really

slid to about $15.50.

But, it’s a correction and the market needed a correction. I’m going to wait now until prices come back.

Besides, I kinda locked in those feed prices at the wrong time and I need a higher milk price to make it pay.

28

Page 29: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 1] • March 2009:

– I’m feeding $8.00 corn and $430/ton meal.– Milk price: $10.44.

I never did lock in my milk price.

• Profits: - $120,000 Annualized

29

Page 30: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 2] • It’s May 2008: Forward contracted March

2009 milk @ $16.50/cwt.• Set a ceiling price for corn and meal @

$5.25/bu and $330/ton.

• Assured coverage of costs of production plus family living

30

Page 31: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Importance of Timing[Person 2] • March 2009:

– Feed costs fell– After marketing costs, my price was $3.85

corn and $320 meal. – Milk price was 10.44, but I contracted for

$16.50

• March 2009 Profits: $74,925 annualized

31

Page 32: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s the Point

• Timing of decisions is a new challenge

• It’s the Margin That Counts!It’s the Margin That Counts!

32

Page 33: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Marketing is Part of ManagementMarketing is Part of Management33

Farm & Family

Strategic Plan

Production Management

Marketing Management

Financial & Investment

Management

SpreadsheetSpreadsheet

Page 34: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Outlook?

• … logic leads one to believe that all commodity prices will be lifted, including dairy, but buyers and sellers of dairy commodities should be advised that the outlook for 2010 is uncertain at the moment, with differing viewpoints (Ken Bailey, Feedstuffs, Dec 14)

• There’s a place for outlook, but use it wisely! It’s information, not an answer!

34

Page 35: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Parts of a Marketing Plan

Getting ready1. Take an Inventory: marketing resources, risk tolerance, and

non-price marketing objectives 2. Know the Playing Field: situation, outlook, & historical prices.3. Know Your Toolbox: Marketing Tools and Strategies

Take Aim1. Costs of production and Financial objectives2. Personal Price Targets3. Basis and Triggers for Action4. Marketing Protocols (what do you do when your trigger’s

tripped!) Fire

1. Evaluation, control, and record-keeping

35

Page 36: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Parts of a Marketing Plan

Getting ready1. Take an Inventory: marketing resources, risk

tolerance, and non-price marketing objectives Computer Relationship with lender & broker Relationship with spouse!

2. Know the Playing Field: situation, outlook, & historical prices.

3. Know Your Toolbox: Marketing Tools and Strategies

Forward contracts, Futures, PUT, CALL, LGM-Dairy

36

Page 37: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Costs of Production, Financial Objectives, and Personal Price Targets

What price do you uniquely need/want:

– Cost of production

– Other farm business and family financial objectives that you want the milk check to cover

37

© 2005

Page 38: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Red Ribbon:

Blue Ribbon:

Purple Ribbon:

38

Personal Price Targets

White Ribbon: (cash costs)

Page 39: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Personal Price Targets

Item Mailbox Price

Needed

Expected Basis

Marketing Price

Triggers

Basic Cash Costs 12.73 1.25 11.48

Family Living 16.27 1.25 15.02

Retained Earnings 17.79 1.25 16.54

Misc 18.93 1.25 17.68

39

Page 40: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Marketing ProtocolsMarketing ProtocolsYour Marketing RulesYour Marketing Rules

40

Tough, Tough, ToughTough, Tough, Tough

Page 41: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Do Futures Offer Do Futures Offer OpportunitiesOpportunities

To Capture ProfitsTo Capture ProfitsTo Minimize LossesTo Minimize Losses

To Reduce Price RiskTo Reduce Price Risk

Page 42: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

42

Year(Annced Price)

2010 (14.50)

2009(10.78)

2008(19.32)

2007(13.56)

2006(13.39)

2005(14.14)

< 11.00 0 0 0 0 0 0

11.00-11.49 0 0 0 6 0 0

11.50-11.99 0 0 0 63 0 47

12.00-12.49 0 0 0 86 29 150

12.50-12.99 0 0 0 174 162 12

13.00-13.49 11 0 0 14 61 3

13.50-13.99 48 1 42 11 0 4

14.00-14.49 49 30 19 1 0 4

14.50-14.99 95 63 32 0 0 1

15.00-15.49 49 62 24 0 0 2

15.50-15.99 26 18 31 0 0 0

16.00-16.49 9 45 50 0 0 0

16.50-16.99 8 18 51 0 0 0

17.00 > 63 120 26 0 0 0

January

Page 43: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

43

Year(Annced Price)

2010 (12.66)3/10

2009(10.78)

2008(16.76)

2007(16.09)

2006(10.93)

2005(14.61)

< 11.00 0 45 0 0 17 011.00-11.49 0 15 0 0 14 011.50-11.99 0 3 0 53 7 5712.00-12.49 0 2 0 97 61 15012.50-12.99 10 6 0 76 172 2613.00-13.49 15 4 26 12 25 513.50-13.99 20 6 22 44 0 2514.00-14.49 52 18 14 17 0 2014.50-14.99 97 20 49 23 0 1415.00-15.49 99 50 44 5 0 415.50-15.99 58 23 100 10 0 316.00-16.49 4 36 43 0 0 016.50-16.99 8 28 35 0 0 017.00 > 0 121 20 0 0 0

April

Page 44: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

44

Year(Annced Price)

2010(15.10)3/10

2009(12.11)

2008(16.28)

2007(20.07)

2006(12.29)

2005(14.30)

< 11.00 0 0 0 0 0 011.00-11.49 0 11 0 0 0 011.50-11.99 0 15 0 0 61 012.00-12.49 0 16 0 39 63 012.50-12.99 0 16 0 27 20 3013.00-13.49 0 9 0 56 72 9313.50-13.99 0 34 0 35 162 4314.00-14.59 0 38 0 26 0 8414.50-14.99 5 34 0 34 0 6415.00-15.49 70 10 39 10 0 1615.50-15.99 141 35 86 35 0 016.00-16.49 43 6 77 18 0 016.50-16.99 0 19 38 3 0 017.00 > 0 135 133 96 0 0

September

Page 45: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Futures higher at least 10 days, 05-106 of 6 Years

(100%)5 of 6 Years

(83%)4 of 6 Years

(67%)

January 13.00 13.50 13.50

February 13.00 13.50 15.00

March 13.00 14.50 15.00

April 13.00 14.50 15.50

May 13.00 14.50 15.00

June 13.00 14.50 15.50

July 13.00 14.50 16.50

August 13.00 15.00 16.00

September 13.50 15.00 16.00

October 13.00 14.00 16.00

November 13.00 13.50 15.50

December 13.50 13.50 15.50

45

Page 46: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Futures higher at least 10 days, 00-10* 6 of 6

(100%)10 of 10(100%)

5 of 6(83%)

8 of 10(80%)

4 of 6(67%)

6 of 10(60%)

January 13.00 11.40 13.50 12.00 13.50 12.40

February 13.00 11.00 13.50 12.00 15.00 12.00

March 13.00 11.20 14.50 12.00 15.00 12.00

April 13.00 11.80 14.50 12.00 15.50 12.00

May 13.00 11.80 14.50 12.00 15.00 12.20

June 13.00 11.80 14.50 12.00 15.50 12.40

July 13.00 12.40 14.50 12.60 16.50 13.20

August 13.00 12.80 15.00 13.20 16.00 13.80

September 13.50 13.00 15.00 13.40 16.00 14.40

October 13.00 12.80 14.00 13.00 16.00 14.00

November 13.00 12.60 13.50 12.80 15.50 13.40

December 13.50 12.20 13.50 12.40 15.50 12.40

46

Page 47: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

47

• Minimum futures opportunities for the six years from 2005-2010

– 100% of time (6 of 6) years: $13.00– 83% of time (5 of 6 years): $14.00– 67% of time (4 of 6 years): $15.50

– $16 or greater was available 50% of the years– $17 and greater all but two months for 50% of years

Page 48: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s the Point?What’s the Point?

• What are your red, blue, and purple ribbon price targets?– What do those targets buy you.

• What is at risk from the input cost side?– What can be price protected.– Do you have a control process for continuous

checks

48

Page 49: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s the PointWhat’s the Point

• How much are you willing to pay for marketing per cwt?

• Is your lender with you?

• Does your broker know your plans?

• Does your spouse and business partners know your plans?

49

Page 50: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

What’s the Point?What’s the Point?

• What is your blueprint for marketing when:

– price opportunities are low?price opportunities are low?

– when price opportunities hit your when price opportunities hit your financial triggers?financial triggers?

– when price opportunities are high?when price opportunities are high?

50

Temptation is to spend all my Temptation is to spend all my time on this slide, BUT!time on this slide, BUT!

Page 51: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

3-6

Less than 3

More than 6

Months Away From Market

Month

Pricing Opportunities Outlook Marketing Action

Medium

Low

High

Trigger Price At What Price Will I Engage This Action

Hedge 80%

FC and buy CALL Option

51

© 2005

Set low floor with unlimited upside

Page 52: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

52

Some Final Some Final ThoughtsThoughts

Page 53: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Good MarketersGood Marketers

– Will be wrong, – Are patient– Are long run thinkers, – Hit singles with a double here and there.– Are disciplined to a plan– Make marketing decisions to meet management

goals– Brag about their Return on Assets over the last five

years.

53

Page 54: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Bad MarketersBad Marketers

– Decide to get in and out based on “gut” instinct– Go for the homerun– Think milk prices are too low– Brag about the price they locked in this month

54

Page 55: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Think Long RunThink Long Run

• What is your strategic plan– Exit with equity in 7-10 years– Build equity for expansion– Transition– Double digit ROROE

• What return do you need to accomplish your long-term plan

55

Page 56: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

Act Short TermAct Short Term

• With your long run strategic plan as the blue print - plan this next year given– Input prices, production, output prices– New capital investment– New management processes/systems– Labor– And, of course, MARKETING

56

Page 57: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

57

Marketing is not a silver bullet. Marketing is not a silver bullet.

It is not a new profit center.It is not a new profit center.

It won’t make up for poor It won’t make up for poor production.production.

Page 58: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Cash With Mrkt

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

J-00

J-01

J-02

J-03

J-04

J-05

J-06

Months

Marketing Gain/Loss

TR Low to High Range per Month With and

W/O Marketing

$15,000

$25,000

$35,000

$45,000

$55,000

$65,000

$75,000

($200,000)

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

J-00

J-01

J-02

J-03

J-04

J-05

J-06

Months

Cumulative Marketing Gain/Loss

FC 100% at $10.00 Trigger

Page 59: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

$11.00 PUT for $.15

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Cash With Mrkt Desired Revenue

(2,000)

0

2,000

4,000

6,000

8,000

10,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Marketing Gain/Loss

$0$5,000

$10,000$15,000

$20,000$25,000

$30,000$35,000

$40,000$45,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Cumulative Marketing Gain/Loss

TR Low to High Range per Month With and W/O Marketing

$15,000

$25,000

$35,000

$45,000

$55,000

$65,000

$75,000

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

Page 60: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

FC 10%, 15% and 25% at 50th, 70th and 90th %-tile

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Cash With Mrkt Desired Revenue

(12,000)

(10,000)

(8,000)

(6,000)

(4,000)

(2,000)

0

2,000

4,000

6,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Marketing Gain/Loss

($30,000)

($20,000)

($10,000)

$0

$10,000

$20,000

$30,000

J-00 J-01 J-02 J-03 J-04 J-05 J-06

Months

Cumulative Marketing Gain/Loss

TR Low to High Range per Month With and W/O Marketing

$15,000

$25,000

$35,000

$45,000

$55,000

$65,000

$75,000

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

Page 61: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Think of Marketing in Two Levels

Reduce Price Risk- Easy to do, Passive

- Effective- Likely will not result in

higher price

Increase Price- More complex, Active

- More involved- More Time

- New set of skills required- May result in higher price

Page 62: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Do Nothing Do Something

Hedge, Put Outlook is up

???

Marketing DisciplineMarketMarket

Do

Not

hing

Forward

SaleShort

Fence

CallPut

Hedge

62

Page 63: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville
Page 64: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

64

Futures Prices in Context(Comparison of Feb 7 to Sept. 14, 2007)

111213141516171819202122

C-I

II/B

FP P

rice

Average

75 %tile

On Feb 7,2007

On Sep 14,2007

1996-2006 data

Page 65: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

ControlEvaluate Records

65

• Set aside specific time for marketing just as you set time aside for doing the milking

• Always Review and Revise (with spouse, partner, banker, Extension agent, broker, marketing club etc.)

• Market for the long run

Page 66: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

The Take Home MessagesThe Take Home Messages

• Management Matters

• Marketing is a part of Management not an activity that sits in a vacuum by itself

• Think long-run – act short-term

66

Page 67: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Following are Following are some people we some people we know who made know who made

their plans their plans happen!!!happen!!!

67

© 2005

Page 68: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

This child, at four years old, could not speak. Some thought he would not make it in life due to

lack of intelligence.

Who was it?

Albert Einstein

68

© 2005

Page 69: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

His music teacher once said of him, “As a composer he is hopeless.”

Who was it?

Beethoven

69

© 2005

Page 70: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

This person’s teacher told him he was too stupid to learn anything.

Who was it?

Thomas Edison

70

© 2005

Page 71: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

He was cut from his high school basketball team.

Who was it?

Michael Jordan

71

© 2005

Page 72: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

This person was fired from his first job because he lacked imagination.

Who was it?

Walt Disney

72

© 2005

Page 73: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

This person failed the 6th grade.

Who was it?

Winston Churchill

73

© 2005

Page 74: Marketing and Management Avoid Playing Eeny, Meeny, Miny Mo With Your Future Kevin Bernhardt UW-Extension, Center for Dairy Profitability, and UW- Platteville

Farm & Risk Management Team

© 2008

74

Class III Prices - 1980-Dec 2009

9

11

13

15

17

19

21

Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

Cla

ss I

II/B

FP

Pri

ces

1980-04