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Corn+Soybean Digest

Corn Contracts That Work

Neal Odom ran a feedyard located in a part of Texas that, by most accounts, is a grain-deficit region. (Odom just moved to B3R Country Meats, Childress, TX.)

What to do? He contracted for as much corn as possible to save feed costs. At the same time, he'd give growers in his area a better price than cash.

Mark Urbanczyk is one of about 10 growers who gained from doing business with Odom. McLean Feedyard is located in the eastern panhandle near McLean, TX.

Urbanczyk grows seven different crops in a highly diversified operation over 20 miles from the feedyard. Low corn prices and high irrigation costs have forced him to look for more profitable uses of his land. Until then, he secures the best corn price he can find.

“We were able to contract corn with Neal for about 8¢/bu over the Amarillo (terminal elevator) price and 27¢/bu over the local elevator price,” says Urbanczyk, who delivered about 60,000 bu to the feedyard. The corn was contracted in early September, a few weeks before harvest. Other growers book corn with the yard six months ahead of harvest.

Even though area corn yields of 175-225 bu/acre are common, the vast cattle feeding region ships in about half its grain needs. With some six million cattle finished a year, that's a lot of Nebraska and Kansas corn fattening Texas-fed cattle.

Odom tried to feed all the local corn he could. He'd work with growers to provide a better price than they could receive at the elevator.

He also worked with growers to make deferred deliveries if possible. That guaranteed him a certain supply. And it enabled growers to sell during seasonal market rallies or when the basis was the strongest.

Odom noted that if growers contract early in the year for harvest delivery, they often see better prices. He said if they contract for a high price, the feedyard could use futures or options to cover their price.

Odom preferred to contract for full-season varieties. He found that kernels from short-season varieties were sometimes smaller than he wanted for steam flaking. So he'd ask growers which varieties they were growing before making a final decision.

James Mintert, extension livestock marketing economist at Kansas State University, says many feedyards like this type of local-contracting arrangement. “They avoid some freight and load-in and load-out charges. They pass some of the savings back to the farmer,” he says.

Like Odom, Mintert stresses that if growers want to contract with a feedyard, they should discuss the yard's needs well ahead of time. “There may be opportunities to deliver corn at a higher moisture level (which would ease harvest problems),” he says. “And there could be opportunities to deliver during periods when basis levels would benefit the grower.”

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