Milk price gyrations test producer commitments to marketing strategies
by Matt Mattke
The volatile and roller coaster-like pattern to milk prices in 2010 provided an ideal market for testing a person’s commitment to a marketing strategy. The price moves resembled a smaller version of the bear market/bull market cycles that tend to play out over a couple years. While 2010 price moves were not as large as the rallies and selloffs in 2007-2009, there was a great deal of volatility and emotion involved in the swings.
These swings can provide marketing opportunities, but can also create a real test of your mental commitment to marketing, gyrating between wishing you had milk contracted or wishing you didn’t, and between following through on a planned action or not.
The year in review
Here is a brief and generalized recap of 2010 milk price movement and, correspondingly, how emotions and commitment level to marketing could be challenged.
• Milk prices trended lower from January through June. All milk futures contract months from March 2010-July 2010 steadily made new lows month after month, until a bottom was reached in the middle of June.
• From June through mid-October, prices changed trend, climbing higher. By mid-September, prices were making new highs for the year. This rally – into new and uncharted territory for 2010 – lasted about a month.
• Mid-October is when November and December contract months started to drop.
• During November, the December 2010 contract collapsed and fell to the lowest price since April and May.
All this volatility resulted in milk prices moving to three different extremes throughout 2010. In the first half of the year, $15/cwt. milk dropped to $12-$13/cwt. In the second half of the year, prices rallied from $13/cwt. to almost $17/cwt., and then dropped all the way back to $13/cwt again. This pattern of new highs, then new lows, then new highs, and then back to the lows, resulted in similar swings in emotions.
Emotions unravel discipline
The topic of emotions is probably the most frequently overlooked, least talked about, but arguably one of the biggest factors determining marketing success. It is inextricably linked to discipline and execution. Emotions can unravel a disciplined, well thought-out marketing strategy, or prevent necessary execution. It is pure emotion that causes people to sell and get most bearish at market bottoms, and buy and get most bullish at market tops. Major price moves start with technicals and fundamentals leading the way, climaxing with high human emotions taking prices to a top or bottom.
It is normal and expected for your emotions to swing with markets: Your incomes and livelihoods are dependent on where prices go. The consequences of emotions can have big impacts on your marketing strategy.
The large and frequent price swings during 2010 lead to questions which assess what impact, if any, emotions had on your milk marketing. Did emotions:
• cause a failure to execute on any targets?
• make it hard at times to make a decision?
• cause you to deviate from the original marketing strategy?
If the answer to any of these questions is “yes,” then actions must be taken to resolve this. With volatility rising year-over-year in the milk market, as well as the feed markets, learning to control your emotions and stick to a pre-planned marketing strategy will become even more important than ever. Getting caught up in the emotion of the price move can take your sight off larger-picture marketing goals.
Stick to strategy
A first step to overcoming marketing emotions is to develop a marketing strategy focused on your overall average price. Crunching the numbers so you are comfortable with their overall average price – under any market scenario – can help you steer clear of emotional pitfalls.