Southwest Agribusiness Consulting, Inc.

··· Associations ···

PRODUCER MARKETING PLANS

Through our association with Hurley and Associates, Inc. of Charleston, Missouri, we are able to bring producers an affordable and professionally run marketing plan. This program also includes an introducing brokerage service that brings benefits from the large customer base and is designed specifically for producers. This association with a nationally recognized leader in producer marketing offers our customers the ability to be a part of a unique national network of services designed specifically for developing and implementing customized individual marketing plans. The wealth of information and support that this program provides helps us to efficiently develop and implement well-organized marketing strategies with discipline in the marketplace.

The ultimate goal of our marketing plans is to protect marketing and management decisions in the face of uncertainty about weather, production, and price. Rather than making these decisions based on what-ifs, however, an organized price risk management plan assist our customers in using time-proven strategies to make decisions that are based on sound business and financial rewards. We feel that using wisely established pricing targets facilitated by the well-planned use of futures and options strategies adds directly to our customer's bottom line. Therefore, our customers understand that we will be using every feasible tool at our disposal to try and improve their position in the market throughout the year.

Futures Targets: A cornerstone of any marketing plan is the establishment of futures price targets to facilitate hedging activity. Whether the goal is to protect downside price risk for producers (sellers) or and upside price risk for users (buyers), discipline is key to hedging. Our staff pulls together information provided by Hurley and Associates, FC Stone, and other trade resources to develop futures targets that reflect both the market fundamentals and unique costs structure of each customer. In addition, each customer's unique business and production characteristics determine the level of aggressiveness to which each new futures target is applied to the respective production or use of a given commodity.

The management of futures levels is achieved in a variety of ways depending on the customers unique risk profile. For some, all or part of futures price protection is best handled in their private trade account. When this approach is warranted, our staff works with the customer to determine the level of coverage necessary, and then executes the trade through our affiliations with Hurley and Associates and FC Stone. For others, using cash contracts designed for this purpose and offered through merchants is more desirable. In this case, our staff works with merchant representatives to come up with the most desirable cash contracting plan. When there are production concerns, however, the use of options become a more important tool for risk management.

Options Management: Commodity options were designed with the producer in mind. Both put options (protecting downward price moves) and call options (protection upward price moves) are ideal given the 'known' risk feature. Our staff works with customers to determine the level of coverage necessary to meet marketing plan objectives, and then takes full responsibility in executing the trade through our affiliations with Hurley and Associates and FC Stone. Once an option position is opened, however, it is critical that these trades are managed to adequately protect the customers time period of risk. Exit strategies are also developed to balance both the period of price risk and any profit goals of the customer.

Basis Negotiation: Once a clear direction for futures price protection is achieved, we assist our customers in managing the basis portion of the final cash price. We work on behalf of the customer to consider all of the price and service aspects of a particular basis. This includes the understanding of basis trends in the customers given market, and a familiarity with key institutional factors that can influence basis in that same market. Basis establishment then, becomes a year-round activity guided by our marketing plan so that our staff can efficiently handle varying grades and shipment periods as desired by the customer.

Cash Contracting: The most important aspect of cash contracting is the understanding of which type of contract to use given the current characteristics the futures and basis markets, as well as available delivery terms. Our staff utilizes a combination of Futures First (No Basis Established), Basis Only, and standard Cash Forward contracts to meet various marketing plan needs throughout the year. Working with the permission of our customers, we communicate directly with cash merchants to execute the pricing of cash contracts.

Returns to Storage: An important part of our program includes the continual evaluation of returns to storage, whether a crop is stored on the farm, or in a commercial facility. This analysis takes into account carry in the futures market, carry in the basis market, the ability to maintain quality, the costs of interest and storage, and the cash flow needs of the customer. In addition, storage considerations are balanced with the facilitation of USDA commodity loan and price support programs such as Loan Deficiency Payments.