Economic Disruptors Will Continue: Crucial Actions Needed to Minimize Risks
Freight disruptions, foreign conflicts, and government policy – while we cannot know the impacts with certainty, we do know they are creating market volatility.
Global supply chain disruptions like these, coupled with pricing uncertainty, and of course the weather conditions, are making it more difficult than ever to operate commodity-based operations in traditional ways.
“There are just too many factors working against you, and the future requires a different approach,” says Pinion Ag marketing strategist Eric Osterhaus.
It is important to recognize that price does not trade on fundamental reasons alone. It is easy to stick to fundamental headlines too long and end up being caught by a headline that changes the market dynamic, oftentimes causing producers to market defensively.
“As the agricultural and fuel markets have become more global, this has added complexity to simple seasonal supply and demand fundamentals. Without adaptation and proactive risk management measures, your business is a sitting duck for disaster.”
How can you succeed amid volatile markets?
One of the most important criteria for making decisions and creating a risk management strategy is modeling your profitability potential or loss mitigation. Identify costs of production, break-evens and production estimates which are primary drivers in a good business plan.
Those who market without a good handle on this type of data are more likely to make risk management decisions reactively based on emotion, and less likely to make proactive decisions based on profitability, which is the real goal of good risk management.
Risk management extends beyond the commodity market, including other areas of your business such as: information security, technology (production and business), employees, cybersecurity, vendor relationships – the list goes on and on.
The bottom line is that complexity and volatility will remain part of the commodity picture. Understanding risk factors, mitigating their impacts, and pursuing opportunities and solutions will be essential for succeeding amid ever-changing markets.
Steps to build a resilient risk management plan
1. Take an honest, personal assessment of your knowledge and skill of marketing tools.
2. Value the data of your operation. Invest in technology needed to gather this data.
3. Establish profitability goals in advance.
4. Know your risk comfort level.
5. Identify market risks and develop hedging strategies in advance.
6. Review strategies periodically and refine if needed.
7. Plan for cash-flow needs in marketing decisions.
8. Invest in ways to control inventory, such as alternative storage solutions or buying programs.
9. Leverage insurance in your risk management decisions
10. Establish a vendor management system.
11. Engage in IT and cybersecurity audits.
Contact a Pinion advisor to help with marketing strategies and risk management plans.