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

2005 RME - Executive Marketing

1

Executive Marketing:Developing a Marketing

Plan

Scott A. Mickey


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Seminar Purpose

Develop a written marketing plan based on producer’s financial needs Operating costs Cash flow requirements Planting intentions


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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

How Healthy is Your Business

Assess the financial condition of the business

Recent Balance Sheet


5

Assessing Financial Position

Go Caution Stop

A. Debt to Asset ratio Total Liabilities < 30% <60% >60%Total Assets

B. Current ratio Current Assets >1.50 >1.0 <1.0Current Liabilities

C. Working Capital Current Assets ? ? ?- Current Liabilities

D. Working Capital Working Capital > 25% of > 15% of < 15% of

Revenue Gross Revenue revenue revenue revenue

E. Asset Turnover ratio Gross Revenue >.60% >.25% <.25%Total Assets

How much RISK can you bear in 2005?


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Assessing Financial Position

1. What is the ratio telling us?2. How has it changed from last

year?3. Will it impact marketing

decisions?


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Fundamental Analysis

Where prices may go When


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Fundamental Analysis

1. Project Ending Stocks2. Estimate US average cash price3. Add average US basis to cash price4. Determines expected Futures price5. Adjust to HARVEST futures price6. Evaluate years with similar ending

stocks


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Corn Stocks and Price

89/ 9090/ 91

91/ 92

92/ 93

93/ 94

94/ 95

95/ 96

96/ 97

97/ 98

98/ 9999/ 00 00/ 01

01/ 02

02/ 0303/ 04

04/ 05

$1.50

$1.75

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

250 350

450 550

650 750

850 950

1,050

1,150

1,250

1,350

1,450

1,550

1,650

1,750

1,850

1,950

2,050

2,150

2,250

Ending Stocks (mil bu)

U.S

. Sea

son

Cas

h Price

($/

bu)


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Fundamental Analysis:Projecting Pricing

Opportunities

Corn

Projected ES 1753

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


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Fundamental Analysis: Projecting Pricing

Opportunities

Evaluate Similar Years 1999 2004

Beginning Stocks 1787 958

Ending Stocks 1797 2010

High Price 250 342

Month Mar Apr

Low Price 184 193

Month Dec Dec


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Crop Insurance

Understand available products Production guarantees Revenue guarantees

Use CRC for Market Trades


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2000 – 2004 MPCI Analysis2000 2001 2002 2003 2004 Average

1 APH 100 100 100 100 100 100

2Coverage Level 75% 75% 75% 75% 75% 75%3 Bushel Guarantee 1 x 2 75 75 75 75 75 75

4MPCI Price Election $1.90 $2.05 $2.00 $2.20 $2.45 $2.12

5Actual Yield 68 136 44 127 123 99.66 Production Loss 4 - 5 7 0 31 0 0 7.6

7 MPCI Claim 3 * 6 $13.30 $0.00 $62.00 $0.00 $0.00 $15.06

8 MPCI Premium ($15.38) ($15.38) ($15.38) ($15.38) ($15.38) ($15.38)

9MPCI Return 7 - 8 ($2.08) ($15.38) $46.62 ($15.38) ($15.38) ($0.32)10 Acres 1,000 1,000 1,000 1,000 1,000 1,00011Farm Total 9 * 10 -$2,080 -$15,380 $46,620 -$15,380 -$15,380 -$320


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2000 – 2004 CRC Analysis2000 2001 2002 2003 2004 Average

1 APH 100 100 100 100 100 100

2Coverage Level 75% 75% 75% 75% 75% 75%3 CRC Base Price $2.22 $2.44 $2.29 $2.42 $2.53

4CRC Min Guarantee 1*2*3 $167 $183 $172 $182 $190

5CRC Max Guarantee 1*2*(3+$1.50) $279 $296 $284 $294 $3026 CRC Harvest Price $1.78 $2.17 $2.59 $2.20 $2.257Final Guarantee $167 $183 $194 $182 $1908 Actual Yield 68 136 44 127 123 99.69 Revenue To Count 6 * 8 $121 $295 $114 $279 $277 217.254

10 CRC Claim 7 - 9 $45 $0 $80 $0 $0 $25.1511 CRC Premium ($21.15) ($21.15) ($21.15) ($21.15) ($21.15) ($21.15)12CRC Return 10 - 11 $24.31 ($21.15) $59.14 ($21.15) ($21.15) $4.0013 Acres 1,000 1,000 1,000 1,000 1,000 1,00014Farm Total 12 * 13 $24,310 -$21,150 $59,140 -$21,150 -$21,150 $4,000


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Crop Insurance -

Comments Is CRC a better way to go? What about the price in between

the base period and harvest period?


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CouldaSeptember 2004 Price Trends

$200

$225

$250

$275

$300

$325

$350

1/1 2/13/1

4/15/1

6/17/1

8/19/1

CBOT CRC Harvest MPCI Price


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Marketing Simulation Game

Dr. Art Barnaby’s corn trading game S/D reports Futures / Options / Cash Crop Insurance

Review of price enhancement strategies


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Target Price Analysis

Discover “successful” prices Target = OP + Extra B/E = OP Cash Flow = OP - WC

Use producer’s actual crop budgets


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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


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FLOIDFamily Living &

taxes

Operating expenses

Interest

Debt (principal)


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Calculate Operating Profit

Dec-05 Per Acre

Family Living $65,000 $33

+ Interest 28,500 14

+ Debt (Principal) 58,500 29

= Min Op Profit $152,000 $76

+ New Assets 50,667 25

= Op Profit Target 202,667 $101

2,000 crop acres


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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


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Calculate Target Price

Corn Cotton

Operating Cost $222 $399

+ Op Profit Target 101 101

= Calculated Gross $323 $500

- Non Crop Revenue -19 -19

=Crop Revenue Required $305 $482

/ Expected Yield 98 bu 750 #

= Target Price $3.11 $0.64


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Putting the Plan on Paper

When How What

Quarterly Updates


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Executive Marketing: UpdateAcreage 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, 3.05 Actions: If no crop is priced, get to 50% priced now. Price in September or December based on your storage situation and risk tolerance.

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


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Thank You!

Scott [email protected]

PO Box 237Sumter, SC 29151

803 775-4580800 881-7518 fax

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

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