28 May 1999

HOWMARKETING RISK IS GAUGED

WITH feed wheat prices already trading within a £20/t range this season, improving grower marketing skills is a key part of the HGCA presence at Cereals 99.

Its market information team will offer visitors the chance to draw up individual marketing plans based on five theoretical types of risk taker – and to compare their own farm marketing plan for last year with the HGCAs computerised economic model.

Growers need to revisit their marketing skills, particularly as market returns still account, on average, for over 60% of revenue, says Alastair Dickie, chairman of the HGCA market information advisory committee.

A marketing plan, drawn up in advance, is crucial to success, he says. "Planning really needs to start when deciding what crop to drill. A realistic budget needs to be drawn up using achievable forward prices, and which takes account of cash flow requirement and the overdraft limit of the business.

"The 18 months between planting and harvest should be considered as the marketing period for the crop – and each farmer should set out a plan which suits his attitude to risk (see below), and which projects sales volume each month.

"Any criteria can be used to construct a plan – whether it be one-eighteenth of the estimated crop each month, avoiding harvest pressure, saving some sales for late in the season – so long as it produces a monthly plan which can be monitored." &#42

HGCA model marketing plan – how do you fare?

The HGCAs computer model marketing plan has been designed from the HGCAs analyses of markets and trends over the past year. It will enable growers to compare their own 1997/98 plans and see where they could have made gains or minimised losses.

Alongside the main computer model, HGCA economists have drawn up five separate general marketing plans based on their interpretations of the different types of "risk taker".

Visitors to the HGCA stand can fill out questionnaires designed to assess their attitude to risk. These will then be used to produce grower plans according to the five economic models.

&#8226 Cautious Type

Enters market with view to survive rather than profit. Market knowledge poor and take up of new products, such as forward selling or hedging, non-existent. Will leave market having vaguely achieved objective, but without securing best results.

&#8226 Planner

Looks carefully at risk management and uses break even points to dictate marketing pattern. Uses methodical plans and sound management techniques, but in overplanning misses the opportunity to benefit from price peaks and troughs.

&#8226 Mr Progressive

Enthusiasm for higher returns can lead to an overmanaged portfolio. Uptake of marketing products good, but enthusiasm for marketing often not matched with planning skills.

&#8226 Mr Passive

Risk management strategy effectively non-existent. Marketing plan uses historical buying and selling patterns, decisions sometimes made on need for cash flow or other random events. Most exposed to pitfalls of volatile prices.

&#8226 Punter

Prefers risk, and has eagle eye on market direction. Profits are linked to decisions made on "gut reaction" – highly exposed risk attitude which offers potential for big gains – as well as big losses.