Reprinted from GRAIN JOURNAL March/April 2020 Issue
Chad Rosebrook
Grain Merchandiser
Legacy Farmers Cooperative
Findlay, OH
“In our area, we’re coming off the worst prevent plant situation we’ve had in more than a generation. Getting our farmers to be proactive on grain marketing is a real struggle this year, because many of them had a lot of grain forward booked last year going into spring and summer. A lot of those contracts had to be rolled ahead to the next crop year or flat-out canceled, which often resulted in not-so-favorable conditions for those farmers who had those contracts. So we’re a little concerned about how aggressive our farmers are going to be forward-marketing their crop. It’s going to be a real challenge to get them to do so this year.
“As a result, our philosophy this year is to get back to basics. We’re not trying to do anything too complicated right now to get farmers comfortable with forward contracting in general. We aren’t trying to do the latest and greatest OTC structure. So for us, cash contracts and target orders are going to be essential. Additionally, I think our summer average pricing program is going to be essential, because it’s an easy-to-explain program. It’s a good way for farmers to forward contract and diversify their marketing in a simple way, as opposed to some of the more complex strategies.
“In terms of international markets and the trade situation with China, it’s interesting because we have a phase-one trade agreement in place, but at the end of the day, China can buy soybeans from whomever they want. And right now, it makes more economical sense for them to buy those soybeans from South America. So, we’ve been cautioning our farmers all along this winter as they’re holding on to old crop to consider not waiting on the trade deal to be a silver bullet for old crop marketing. The phase-one trade deal is important, but we still have to consider the seasonality of when China buys soybeans and from whom. I don’t really look for them to be big buyers of U.S. soybeans until we get closer to our fall timeframe, when South American supplies typically get a little more expensive and ours get cheaper.”
Robert Geers
Merchandising Manager
Michigan Ag Commodities
Lansing, MI
“The thing we’re pushing with our guys this year is to just keep it simple. We’re in a pretty challenging time. This isn’t the time to get fancy. It’s time to get back to basics. It’s understanding cash contracts, hedge-to-arrive, and the basis contract, and then really mastering the uses of those basic contracts.
“With some of these other contracts I see, like an options contract or an accumulator, those ones are a little more complex and a little harder to understand, and it just doesn’t seem like this is a time to use them. It’s a time to get back to basics and understand your cost to production, which is surprising to me that after talking to several bankers over the past year, not all growers know their cost of production.
“So it’s important to work with customers, making sure they know where their money is being spent and help them develop a sound plan. And once they know what those costs of production are and have put together a simple plan, it’s about selling when there’s opportunity in the market.
“In addition, once the plan has been made, make sure to execute. Don’t get hesitant when the market gets to a target price. Be happy that the market reached an objective that makes you profitable. Sell in bits and pieces. Don’t do it all at once – kind of scale into it, especially in a carry market.”
Rob Cogdill
Grain Merchandiser
Cogdill Farm Supply
Dunlap, IA
“In terms of basis trading at the elevator, for corn, I try as hard as possible to avoid the noise and just listen to what the market structure is trying to tell me. Opportunities abound to convert long-basis positions into profit during the next three to five months as the farmer is either unwilling or unable to quench processor demand.
“However, the current spread structure is providing ample warning to be prepared to be flat or short basis much earlier in the transition months than we’ve experienced the past few years. Do we snap back to a carry July/September, or does that inverse grow stronger? I don’t know the answer, so I want to be positioned to earn margins either way.
“Relative to corn, the soybean market structure is currently paying me to be patient on basis sales, so I can use our resources to stay current on corn basis length. However, as my mentors would like to say, ‘A good bean is a sold bean.’ I’m taking any exceptional margin opportunities so sell soybeans as they arise – I don’t feel the need to carry every bushel of soybeans.
“As far as farmer marketing goes, during the past couple of years it seems producers have been constantly bombarded with mixed messages. Outside of the usual cacophony of grain market noise, farmers have been ping-ponged between bouts of escalation and de-escalation of trade war rhetoric. In moments when the market signal was to sell, farmers were hearing that a trade deal was just around the corner, or farmers were told, ‘Buy more land and bigger tractors.’
A fear of missing out prevented many folks from pulling the trigger on good sales. The antidote to all of that is to simply set reasonable targets above your cost of production and have the discipline to stick to them when the market rallies. Selling ahead with the seasonals is the closest thing you’ll ever find to a sure thing in free markets.”
Scott Sterkel
Grain Division Manager
Farmers Coop Elevator Co.
Echo, MN
“I think basis right now has been fairly strong and should stay strong around our area, especially on the corn side. I don’t see the board being the driver with all the worldwide issues going on right now.
“Basis contracts have been decent with the lack of carry in the market, because they give you more time to roll into a very thin spread. Some triplexes have been a decent opportunity to get some new crop priced at a decent level. A lot of people are still stuck looking at the flat cash price, and I just don’t think the board is going to help us a whole lot this year on that.
“As for managing risks, when and if we do get to our spring weather rallies, I’m really trying to get people to take advantage of them when they appear. Because in the past four or five years it seems – especially on new crop corn – May, June, and early July have been advantageous. This is because we can grow a crop with any condition, so by the time harvest rolls around, we’re 40 cents behind where we could have been marketing stuff. A lot of people just sat and waited, and while it was going higher, you need to get something done at decent levels. When you get to the opportunity, take advantage of it. Don’t wait for the higher price.”
Josh Grunnet
Senior Merchandizer
Landmark Services Cooperative
Cottage Grove, WI
“This year specifically as it relates to old crop or grain in your bins, the main goal is to make sure you’re on top of quality in your grain bins and making sure that your marketing plan doesn’t stop you from being able to ship your grain. Keep it in good condition, because that can be one of the pitfalls this year.
“We want to be really diligent about making sure we’re not addressing a marketing plan that gets customers into that trap. Making sure that they are moving their grain timely is important. Otherwise, continue to move grain and allow yourself to monitor the market and be able to capitalize on anything we have this spring from a planting standpoint.
“As we get into new crop or looking at new crop programs, we do not want to do a one-size-fits-all marketing plan for our growers, because each one of their businesses is very different. It’s an individual, case-by-case basis. But we do want to give them a good offering of products to use, and we are really promoting making a diversified marketing plan.
“We recommend making sure to get some forward contracts to avoid making a decision last minute or running out of time. So we’re offering an average price contract that could get some of their grain marketed before the season, and otherwise we’re promoting fixed price offer contracts for new crop delivery, making sure producers can participate on any upside market we may have this spring.
“Lastly, keep an eye on your own cash flow needs, and make sure you are paying attention to what your business needs. That way, your marketing plan isn’t getting in the way of business operations.”
Luke Beckman
Grain Sales Manager
Central Valley Ag
York, NE
“A lot of the fundamentals of grain marketing are about the same each year, and this year is no different. We encourage our producers to know, or have an idea of, what it costs to produce a bushel of corn or how many gross dollars it costs per acre. That’s the starting point for them to be confident about making selling decisions.
“You can keep it pretty vanilla and be really successful by having open offers working above the market at predetermined levels that are right for your operation. It’s a pretty simple approach, but it works. And some of the best grain marketers that we see are those who are disciplined about letting open offers work for them.
“The biggest challenge we see at the farm is execution. And what I mean by that is producers have good intentions going into the spring, but emotion tends to get in the way of execution. So one thing we like to advise our farmer clients to consider is inserting some forced execution programs or contracts into their marketing plans. An example would be an averaging program that’s very mechanical, kind of like an index fund for the stock market.
“These work because when things get emotional, we tend to make irrational decisions. Over the past four or five years, we’ve started to lean into those programs a little bit. And again, it’s not to take the keys away from the farmer, but if you’ve been going into harvest 20-30% undersold, you have to ask yourself: What’s that 20-30% you aren’t marketing costing your operation. So we recommend trying to take those bushels you’re not executing each year, put them into a program like that to make sure you’re getting bushels on the books.”
Rango Springer
Merchandising Manager
Stratford Grain Co.
Stratford, TX
“As far as old crop, most of our customers have already priced. We’re in a predominantly irrigated corn area, and about 80% of what we take in is corn. Another 10% is milo, and another 10% is wheat. With wheat, nobody forward-contracts out here, because we can have a hailstorm as the combines are pulling into the field.
“On corn, we like for customers to look at their break-even price. In our area, it’s around $3.80 to $3.90, but everybody’s situation is different, obviously. We encouraged them to lock in, because there was a time that they could get $4.15 per bushel, but very few people did. Our common-sense advice is to have a plan and don’t be afraid to pull the trigger. Then, if you want to do scale-up selling, that’s great. And hopefully the $4.15 is the cheapest corn you sell all year. But I don’t know that there’s going to be another opportunity.
“Overall, we’re pretty basic in our grain merchandising strategies. We don’t offer a lot of structured products. We do offer some contracts for producers who want them, but we don’t push them in this area.”
