by Matt Mattke
A unique approach to evaluate ‘what if’ scenarios
When it comes to markets, anything is possible. Market uncertainty requires a new approach that examines those possibilities, helping provide the confidence to make marketing decisions and the discipline to execute them.
Market Scenario Planningsm is one such approach. It provides producers with actual data showing how a marketing decision will impact his or her weighted average price. The producer may decide to sell X amount of milk, or may decide to do nothing. Market Scenario Planningsm will reveal the net effect of any action or inaction on the producer’s bottom line. In order to derive what the impact will be of any potential marketing decision, “what-if” scenarios must be run.
The “what-if” analysis is the cornerstone of this process. It examines a marketing decision, or a series of marketing decisions, from an objective viewpoint that when it comes to markets, anything is possible. There is nobody who knows for sure where prices will go, and just when a person thinks they have it all figured out, the market throws a curve ball.
A classic example is the period from May 1998 to October 1999. The milk price went from $11/cwt. up to $17/cwt., back down to $11/cwt., back up to $18/cwt., and then back down to $11/cwt., all in less than an 18-month period.
Who’s market outlook would have seen that coming? Who would have thought that type of price swing in such a small window of time was possible? The answers: no one’s outlook. Nobody saw it coming.
So why try to outguess markets that cannot be outguessed? All that is certain is that prices will either go up or down. Sometimes those moves will be small, and other times those price moves will be large.
The key is being prepared for whatever the market does. Constantly running the “what-if” scenarios will help producers to navigate through the volatility and the uncertainty, and help keep them focused on what prices are theoretically capable of – not focused on somebody else’s price outlook.
Next month, we’ll explore Market Scenario Planningsm further.
Market Scenario Planningsm is a service mark of Stewart-Peterson, Inc.