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Corn+Soybean Digest

Elevate Your Market Advice

Some grain handlers provide beefed-up farmer marketing services

Dean McIntosh knows what butters his company's bread.

"We want to help the farmer so he can help us," says McIntosh, a merchandiser at Attebury Grain Co., a large southwestern grain handler.

Like other grain elevator companies, whether they're country elevators or large terminals, the livelihood of Attebury Grain depends on buying and storing growers' corn, soybeans, wheat and other grains. To help maintain customer loyalty, Attebury and many handlers are providing beefed-up farmer marketing services.

Some elevators work directly with growers to develop marketing plans. Others, including Attebury, based in Amarillo, TX, partner with a third-party service devoted entirely to marketing.

You could say Attebury, which operates about 40 facilities, has bought a "franchise" from Grain Price Protection Service (GPPS), a business unit of the Scoular Company in Overland Park, KS. GPPS helps Attebury's local staff analyze each participant's business situation. A written individualized risk management/marketing plan is then prepared for each crop.

The plan includes recommendations on best value for crop insurance coverage, storage space utilization, and the most appropriate type of cash grain contract to execute. Recommendations take into account the time of year, crop conditions, storage availability and cost, cash flow needs, crop insurance, production estimates, prices, market trends and other factors.

Attebury's McIntosh and other grain handlers then discuss the written strategies with individual farmers. If growers endorse the strategies, and a huge majority of them do, then various types of cash contracts are implemented at the right time and at the agreed-upon level to provide price risk management. Growers can then follow the progress of their transactions in real time by accessing their individual accounts on the security-protected GPPS Internet site 24 hours per day.

"We lean on GPPS to give us a recommendation for contracting," says McIntosh. "Marketing is 100% of what they do. They analyze historic basis levels for different production areas, look at how the government program will impact what growers receive, domestic and world demand and other factors that impact grain markets."

With solid market rallies last spring, many growers in the Attebury program had a chance to get 50% of their corn protected in minimum price contracts. McIntosh says that Attebury Grain hedged its obligation to its customers on the contracts by hedging with $2.60 December corn put options at a cost of about 24 1/2/bu, then selling $3.20 December calls for 10 1/2.

That placed the futures floor price at about $2.45. With an average local basis, even with futures at harvest, growers in this example had a $2.45 cash floor price for the grain. They were also open to upside swings in the market up to $3.20 December futures equivalent. They could set their basis at any time before delivering their grain to capture a few more cents from the market.

"Growers had good risk management plans in place for much of their crop, and, again, monitored their transactions on their Internet accounts or by phone," says McIntosh.

Farmers like the cash contracts because they can capture opportunity and manage risk without the need to trade futures themselves or pay margin calls. In all, 15 Scoular locations and 15 non-Scoular grain companies with about 300 elevator locations in 18 states now utilize GPPS. Its senior manager, Jon King, says proof that farmers like the service is illustrated by the fact that 98% of the growers who have a GPPS plan tailored for them actually implement it and then sign up again the following year.

Scoular started GPPS four years ago. Its research indicated that growers wanted to become better marketers in the wake of Freedom to Farm, market volatility and other factors. However, its surveys found that many growers didn't like the hassle of making direct futures and options trades themselves through one-on-one contact with a broker. They wanted to work with someone they trusted, such as their local elevators.

"We decided to build this business around the idea of delivering conservative, disciplined marketing advice for growers," says King. "We don't try to predict prices. We just try to help the local grain companies get their farmers in a win-win situation through the use of numerous cash contracting alternatives."

Grain handlers like the concept. "Our job is to tie the producer closer to his local elevator; too many grain companies steer customers toward a third party and miss an opportunity to develop a stronger relationship with their most valuable assets," King says. "The farmer is the elevator's most valuable asset, whether it's buying the farmer's grain or selling him feed or fertilizer. Without the farmer, the elevator is out of business.

"By partnering with GPPS for the marketing arm of their services, elevators enlist the help of experienced professionals in delivering a profitable producer marketing service and substantially decrease worries of disgruntled customers," King says.

Darrel Good, University of Illinois grain marketing specialist, says there are several reasons why more elevators are helping growers become better marketers. "Many believe that they have the skill to provide useful and objective guidance to farmers," he says. "If the farmer is successful, the elevator will be successful. Some view it as an added service to help retain customer base. Some do it to lock in the customers' grain."

Good says most plans are very conservative, pushing the farmer toward the concept of spreading sales and obtaining the average price. "It's really dangerous to do anything else in the way of advice," he contends.

While many grain handlers see value in providing services directly to customers, some are steering growers toward third parties to develop programs where producers handle their own futures and options trades.

"In recent years we've found that most growers prefer to deal directly with their own brokers," says Bryan Shimp of Farm Service Co-op, Harlan, IA, which has offered extensive marketing programs for customers in the past. "Growers are more comfortable and so are we. There's less chance for animosity if a marketing plan goes wrong.

"Growers feel they can do a better job of marketing if they receive a monthly statement (from a broker) that identifies profit and loss from grain transactions. If marketing moves are wrong by 20/bu, they work out the situation with their brokers."

However, Shimp says, a few of the co-op's customers still want its help. "They want us to do the marketing for them."

For such growers, late spring strategies saw them buying $2.60 December corn puts, selling $2.20 December puts and selling a $3.10 call option. The trade lowered the cost of the $2.60 floor price. "For a 5-6 cost, these growers had strong protection," says Shimp.

If the market had rallied, they would have had a chance to sell in the $2.60 range, less the region's 40- to 50-under harvest basis.

"If growers seek our assistance, we still suggest these types of minimum price contracts if there is an opportunity to lock in profits," says Shimp.

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