Marketing Dashboard for BeefA marketing dashboard is similar to a dashboard in your pickup truck. The truck dashboard provides you with a number of gauges, displays, and controls. These are used to monitor the performance of your truck to make decisions while driving (current) and to maintain (future) it in good working condition. Similarly, a marketing dashboard contains items to monitor the current marketplace and to assist in making future marketing decisions. The items (gauges) in a farm's marketing dashboard will vary and can be personalized depending on the farm business's needs. A few marketing gauges (dashboard items) to consider are highlighted in this article.
Look Forward at Prices
Having a look forward at prices is an important tool to have. Figure 1 provides the snapshot of the prices to-date in 2013 (green bars) and estimated prices (red bars) for the coming year. Also, the current prices can be compared to the five (5) year average prices (black line). This gives a seasonal price trend pattern comparison.
Figure 1. Ontario Fed Cattle Price Trend (alternate text)
The actual 1,250+ steer prices are based on the weekly reported prices by the Ontario Cattlemen's Association. The estimated prices are based on the closing Chicago Mercantile Exchange (CME) Live Cattle Futures and Canadian Dollar Futures on October 4, 2013 and an estimated monthly three year average basis (see "Monitor Basis" section). It is important to remember this is only a snapshot (point in time) of the expected prices. As the market place reacts to new and changing market information, the futures and local cash prices will move accordingly.
A forward looking price can be used to look at "what if" situations, estimate returns over feed and replacement cattle costs, or estimate net returns after all costs (in a Cost of Production calculator). If returns are favourable, major costs are controlled, the risks are considered and a forward pricing opportunity is available, a decision can be made and action taken.
Here is an example of how to calculate a forward looking price. Market information available (based on closing futures October 4, 2013) is April 2014 Live Cattle Futures US$135.45 per cwt.; June 2014 Canadian Dollar futures $0.9649: estimated basis of -$9.88 per cwt. (the two thirds basis range is minus $14.47 to minus $5.29 per cwt.)
Live Cattle Futures (US$/cwt.) ÷ Canadian Dollar Futures (C$/US$) - Estimated basis (C$/cwt.) = Estimated Forward Cattle Price (C$/cwt.)
$135.45 ÷ $0.9649 - $9.88 = $131 (Range would be $126 to $135 per cwt. using the estimated basis range provided)
Based on the Live Cattle Futures on October 4, 2013, the estimated price for fed cattle in March 2014 was in the range of $126 to $135 per cwt. with an average of $131 per cwt. Monitor Basis
The Ontario Fed Steer Basis is the difference between the 1250+ pound steer price in Canadian dollars minus the nearby month Live Cattle CME Futures in Canadian dollars (futures ÷ exchange rate). Figure 2 compares the three year average basis (2010 to 2012) to this year's basis to-date. The weekly average basis calculated by Canfax is used to calculate the simple monthly averages.
Figure 2. Monthly Average Basis (alternate text)
Basis is impacted by exchange rate, local supply and demand, marketing costs (i.e. transportation costs), and government policies. The seasonal pattern as demonstrated in the graph shows a stronger basis in the summer months with the basis weakening through the fall and winter months. A point to keep in mind is that basis will vary every year as demonstrated by comparing this year's basis (2013) with the three year average basis (2010 to 2012). Consideration has to be given to the impact that basis may have on pricing decisions that are made. For example, in April, if marketing decisions were based on the expected basis of minus $6.00 per cwt. and the marketing conditions ended up with a minus $15 per cwt. basis, this could mean a $130 ($9 x 14.5 cwt.) difference in income per head. If a standard deviation for the monthly or weekly basis is available, it can be used to develop an expected range of estimated prices.
Basis can be used to estimate forward looking prices as discussed under the "Forward Looking Price Section". Also by monitoring current basis compared to a historical basis and an expected seasonal basis trend can be used to make decisions on basis contracts being offered.
Develop Market Intelligence
This involves pulling together marketing resources to build your market knowledge base to assist in making timely marketing decisions. There are numerous marketing information resources available for producers to use from simple market price reports to in-depth trend analysis. Market information includes market prices, fundamentals, analysis, outlook, and strategies. Understanding the market fundamentals helps to make informed marketing decisions to capitalize on market pricing opportunities. The key is to utilize resources to help you build your market intelligence to make informed decisions. Three questions that information should assist in answering are:
- What is the potential market impact on your risks? (i.e. price, margin, cash flow and financial risks)
- Which is greater- the factors that could cause the markets to rise or to fall?
- Are there input or output pricing opportunities?
Determine Cost of Production
The market place does not care what your cost of production is. But knowing your cost of production helps to realize what a "good market price" is for your farm business to realize its marketing goals. Calculating the cost to produce a finished steer will give one more piece of information to use when making marketing decisions for inputs and outputs.
The first step is to develop a breakdown of your costs that suits your records and decision making process. Figure 3 an example based on data from the weekly breakeven reports done by the Ontario Cattlemen's Association (OCA). This is a situation of purchasing an 850 pound yearling steer to be fed for approximately 183 days and finished at a weight of 1,450 pounds.
|Total Feed Costs||$410||$28|
|Yardage (health, interest, marketing,etc)||$153*||$11|
Figure 3. Cost of Production Calculator
This simple calculator (spreadsheet) with some interactive input data provides a quick and easy method to do some "what if" situations. In the above calculator, all of the bold green numbers can be changed and all the other numbers are formulas. Quickly you can input some numbers to determine what price ranges are needed to realize the returns your farm business needs. Knowing your cost of production helps to establish target prices to recognize acceptable market prices that are compatible with your financial situation.
These are just four examples of "gauges" that could be part of a "Marketing Dashboard". The "gauges" help to monitor, add discipline and hopefully take some of the emotion out of making marketing decisions. A "Marketing Dashboard" can be a handy farm business management tool to facilitate the successful marketing of your production.
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|Author:||John Bancroft - Marketing Strategies Program Lead/OMAFRA|
|Creation Date:||30 October 2013|
|Last Reviewed:||30 October 2013|