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Corn+Soybean Digest

Elevator Expertise

John Palky got virtually all of his corn marketed for well above $2/bu., with a 40¢ LDP kicker to boot. And Loren Vyhnalek had similar prices locked in. Both depended on their local co-op elevator to help pull the trigger.

Both growers farm in east-central Nebraska. And both are among farmers who depend on their elevators to handle their grain as well as their marketing.

Doug Lewis, of Farmers Cooperative, Dorchester, NE, is the marketing adviser they turn to, sometimes for marketing advice and sometimes for actual trades using futures, options or forward contracts. He is also a licensed commodity broker.

For Farmers Co-op, which has 29 branches across Nebraska, offering marketing services is “another way to add value,” says Lewis, who helps close to 100 growers with their corn and soybean marketing in one manner or another.

“Most are usually willing to do cash price contracts to set a price, then purchase call options to protect their upside,” says Lewis. “They can then set their basis any time before delivering their grain.”

Palky, who farms near Dorchester, has a corn/soybean rotation. He has used a marketing service in the past, but returned to the co-op for help in getting the best price from his crops.

“First of all, Doug is there when you need him,” he says. “If you have someone in Omaha or Chicago doing your marketing, they don't understand what's going on at the farm level.”

Palky's 2005 marketing through Lewis began with early forward contracts. “I got about 30% of my corn forward contracted with the elevator at $2.20/bu. last winter,” he says. “I then used put options to protect the other 70%.”

They were $2.40 and $2.50 December puts that were established in the late spring and early summer when prices were increasing. As prices began to decline late in the season, Lewis worked with Palky to roll the puts down and take some early profits off his corn. They can then set their basis any time before delivering their grain.

Taking profits is also on the mind of Vyhnalek, who farms with his sons, Scott and Steve out of Dorchester. He prefers cash sales to lock in a good price, then using call options to protect him if the market goes up after sales have been made. He might also use puts to set a floor in place of cash sales, which protects the producer if the market drops, and leaves the producer open to capture any market gains.

“Options can be used to cover you if prices go one way or another,” Vyhnalek says.

For the 2005 corn crop, he decided against cash sales because of dry weather predicted in the eastern Corn Belt. “I didn't make any sales when I maybe should have,” he says. “But after talking with Doug at the elevator, I did protect my corn prices with $2.50 December puts.

Vyhnalek did make some early soybean sales by forward contracting some soybeans at $5.20/bu. and some at $5.70. He also established November call option positions to protect against an upswing in the market.

His son Scott points out that a marketing consultant like Lewis should be considered just as much as a crop consultant for agronomic situations.

“You can't keep up with everything all the time,” he says. “You have people help you with your production techniques. Why not have someone help with your marketing, someone who is close to your situation and knows the region?”

Diana Klemme, a vice president for Grain Service Corp. in Atlanta, works with grain elevators nationally as well as with farmers to market corn, soybeans and other commodities. She urges growers to make sure their elevator has the expertise and time to work with them before trusting them with marketing plans.

“Sometimes it might be pretty tough for a grower to ask the elevator to do marketing for him or her and at the same time do what's needed for the elevator to function. If an elevator has an array of a half-dozen marketing strategies, it can cover most of this (marketing assistance to growers). If not, and the farmer really wants someone to market for them, he might go to someone who is independent.”

Some elevator operators might feel there is too much liability at risk if they offer marketing advice that happens to go south for the grower. “Even an off-the-cuff remark about marketing can be construed by farmers (as professional advice),” says Klemme.

The Cargill AgHorizons program and services offered by other major grain handlers and traders like ADM or DeBruce, as well as regional companies, offer a variety of marketing programs for growers.

“AgHorizons has a fleet of people whose sole job is to think of the best way to lay off that risk when they help growers market their grain,” says Klemme. “Country elevators may not have those people.

“If a market goes dramatically wrong, Cargill or ADM can dig into pockets and make that good. That's a burden I don't know if some country elevators would take on, whether they are a co-op or private,” Klemme says.

Todd Kemp, National Grain and Feed Association marketing director in Washington, D.C., notes that country elevators have been working with their producer-customers for years to help market their grain. “Generally, they live in the same community and know each other well,” he says. “There is a long-term relationship and trust between the local elevator and the producer.

“Recently, with many producers adopting more sophisticated marketing strategies, they are finding it of even greater benefit to work with their local elevator on a marketing plan,” Kemp says. “As more innovative cash forward contracts have come into use in the marketplace, the elevator is a valuable source of information on markets and whether various strategies may be appropriate.”

Kemp says these kinds of services help the elevator differentiate its services from other nearby purchasers, such as the feedlot or ethanol plant down the road. “The elevator can help its producers seek more income from the marketplace,” he says.

Lewis says his role for Farmers Co-op is marketing. And as a licensed commodity broker, he can make the trades for growers, and at the same time work with co-op personnel to assure that grower forward contracts and other positions are protected by marketing moves on the co-op's part.

“If we can provide programs that help our grower customers enhance their return, then that's a service that's valuable to them and to the co-op,” says Lewis.

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