The work that goes into the growing of a crop is long, arduous and risk-filled. And when all that work is done, you want to get the most return from that grain. The challenge is that for many farmers, marketing grain is a chore, with most producers selling when prices are softer. FarmLogs, the Michigan-based farm management software firm, is rolling out a new tool that offers a different way to price your crop.
Called AutoHedge, the system allows you to price a portion of your grain crop through a smartphone app. The tool itself does the work by automatically pricing that grain through a period of the year that has historically seen better prices over the course of a year.
“We’re using an index fund approach that spreads risk over an optimal time window,” says Jesse Vollmar, CEO and co-founder. “The concept is not new. It’s a proven methodology, but AutoHedge can make it a lot easier.”
The core idea, long established, is to sell a portion of the grain every day during a specific time period when, historically, market prices are higher. This automatic approach aims to take some emotion out of the work of marketing grain, which is a challenge for many producers. Vollmar notes that even farmers sophisticated in grain marketing can deploy this tool for a portion of their crop as part of a risk management strategy.
“It’s an opportunity to diversify your portfolio,” he says.
Partnering with elevators
FarmLogs is not taking delivery of your grain. Vollmar is quick to note that this is a tool that can work with the traditional side of the market, but it helps price your product. A portion of the bushels a farmer enrolls will be priced every day between Feb. 28 and July 31. It’s a kind of “dollar-averaging” approach that, over time, can provide a consistent return for the crop.
The system can be managed through a smartphone app – you can download the app from Apple for iOS or Google Play for Android. You can enroll grain into the system from the phone and pick your delivery point; and once you talk with a FarmLogs representative, you’re off and running.
The app shows your average price during the length of the AutoHedge process. You know the price you’ll get at delivery based on the Chicago Board of Trade; that means you can lock your basis separately during the same period to manage your net returns.
“The grain elevator is the counter party in this transaction,” Vollmar says. “Our technology initiates the daily trades with them. The price you get is the accumulated price through the pricing window. We’re executing the trade through their hedging system.”
Vollmar said FarmLogs has agreements with several delivery points and is working to add more to expand. It’s putting tech to work in a new way to execute the hedge and track the transaction.
“For our [elevator] partners, they get to offer a valuable service to their customers and stay relevant in a changing, modernizing world,” Vollmar says. “In theory, companies that offer this will be able to attract more loyalty from farmers; if farmers do better at hedging, everyone wins.”
Steve Fulling, Palestine, Ill., shared his experience in a test with the system through FarmLogs. In a media statement, he explained he committed a portion of his production to the AutoHedge system. He noted the benefit of the system was the ability to basically put “a portion of my profit on autopilot.”
A key feature Vollmar points to is a “boost” button. If, during the life of the AutoHedge, something moves the market significantly, growers have the option to go into the system and “boost” more bushels at that price – essentially pricing a higher portion of the committed bushels at the price point.
“That’s a unique feature for this service and gives a farmer some confidence that he can take advantage of a major market move, if it occurs,” he says.
Fulling, who committed 19,000 more bushels to the service, pushed that figure up from the 15,000 originally intended in order to give himself some flexibility to use the boost feature during the year. HE says he’ll push that boost button “if I’m seeing enough, and the number’s attractive.”
The cost of AutoHedge, taken out when you deliver, is 5 cents per bushel for corn and 7 cents per bushel for soybeans. Learn more at farmlogs.com.