Price takers or price makers? Is it even about price?

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Posted by Brendon Walsh on 20 September 2017

 Price and profit 3

It’s a curious response from farmers whenever the prices of farm products rise or fall. As prices rise, surveys show farmer confidence improving. When they fall, farmer confidence dips. It’s not that surprising when you think about it but it’s so predictable, wouldn’t you (as a farmer) ask yourself “is it really all about the price?”

While it’s obviously better to be able to set the price, and there are those working hard to get their farm businesses into that position, most aren’t currently there. That’s simply because that’s not how the NZ farming industry is currently structured, and has not been the track followed by “conventional wisdom.” There is much to be done in this area! Yes, farmers could start trying to become price makers but what about firstly taking a breath and assessing what’s really going on? By doing that, they would give themselves a chance to go beyond the predictable trap of price and be ahead of the game in their decision making.

Prices go up and they go down. In other words, they move in cycles. If you are like most farmers, you are not in a position to make prices, you take them. As a result, they will vary and they will do it beyond your control. How about accepting that and understanding how and why that variation happens so you can position yourself to create advantages? Yes, it helps your bottom line when prices are high and it hinders it when they are low, if you do the same thing all the time. That is obvious. But once you get to know animal/product price trends and how those changes combine with liveweight changes to affect the profit equation, you can begin to set yourself up for opportunities, keep away from threats and make profit regardless.

You see, it’s not about the price. It’s about how well animals gain in value relative to the cost of the Dry Matter (DM) they eat. The cost of DM eaten is a share of all farm working expenses, which is allocated to animals as they eat the DM. That one point right there will be passed over by most farmers because they don’t understand it’s enormity. Understand that fact and you can drive your decision making down the profit track (ahead of the game) instead of down the price track (behind the game).

There are times when that value change improves far greater than the cost of DM eaten, and times when it is less than the cost of DM eaten, or is decreasing i.e. there are profit periods and non-profit periods. By DM being eaten when it is profitable for animals to do so, profit is created. By DM being eaten when it is not profitable to do so, losses are created and the DM/expenses are gone for no return. Plus, you can’t get it back to have it eaten again for a profit! Can you see how profit making depends on choices around how well the profit equation works? Staying fixated on the price blinds a farmer to that logical decision making and puts them on a completely different track, therefore the chances of consistent profit are 50% at best, rendering it inconsistent.

So, it’s not about being wrong or right. It’s about being able to see and put into practice what actually works! Being blind to that drops your chances of success hugely.

Get profit making understood first and then put it into action for results. This allows spare cash (profit) to be banked. Not only does this provide options, it induces confidence - a rare commodity in these times of concern over farmer depression and suicide. From there, momentum can be utilised to launch into creating a price making situation if so desired, from a position of strength! And that is key. Create momentum, get strong and then have the high-quality problem of several options to choose from.

So, ask yourself, how fixated are you on price? Isn’t it about time you looked past the illusion and got on with the real deal of profit making?

If you are curious about how the GrowFARM® System can help sheep and beef farmers generate the profits they really want, contact me here.

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  • We have so many 'older' farmers for whom the word profit has been attributed to whether there is any cash in the bank at the end of the season, and this dependent on what prices were doing. Seems that every article I read lately contains warnings about prices going low, either because of lab created food products, or our environmental reputation being mocked, and that's before we get near climate change (which from the weather this winter is already here).
    If we can't work out how to have stock ready at the right weights when the prices go up, and be able to keep track of the true costs of getting them there, we face a shrinking market, and a host of uncertainties coming at us from every angle. It's a whole new world and we need new skills and learning to cope with it. What Brendan offers works.

    Posted by Sue Edmonds, 20/09/2017 7:38pm (3 years ago)