Marketing grain an important strategy for farm profits

HarvestCombineP6200009.jpg
HarvestCombineP6200009.jpg

You don?t always know the highest spot in the market, or when you can make the most money,? said TMA?s Ted Schultz. ?You have to know when you can make money, and market for that.?<p>

Anything that can enhance understanding of how best to market grain is a tool that increases the chance to thrive as an agricultural producer.

Additional knowledge can be just as fundamental as the type of land you farm, the inputs you buy and your talent for getting the job done.

Most producers realize this?or at least try to get a handle on how they sell the crop. A farmer can sell grain for cash, or use some kind of hedging strategy tied with the cash sales.

The people to whom farmers sell grain also develop a marketing strategy to maximize how they thrive, but there are contrasts between what they do and what a farmer does.

For this area, Cooperative Grain & Supply at Hillsboro, purchaser of local grain, is a member of the Team Marketing Alliance, headquartered at Moundridge along with Farmers Cooperative Elevator Co., Mid Kansas Cooperative and Farmers Cooperative.

TMA Manager Ted Schultz said the four cooperatives together operate 48 elevators.

Like its members, TMA is diversified, handling grain sorghum, wheat, corn and soybeans.

Previous Free Press articles have described how TMA markets the area?s grain sorghum, or milo, for ethanol production. The grain can go for feed at swine facilities or feedlots, or even on to terminals for domestic use or export.

According to local co-op managers, the diverse markets, strengthened by ethanol and feed demands, have helped add value to the crops. But how do you develop a strategy to ensure that some of that added value stays in your pocket?

Schultz said he has come to enjoy the risk management aspect of his job, and how TMA has altered strategies over time to work with changing market situations.

The co-op only buys during market hours, and uses a hedging management system to help minimize the risk in business.

He compared this to how individual producers should develop their own strategies?but theirs will look different than a company strategy.

Schultz explained that when TMA buys grain, it is automatically entered into the computer system to hedge it through a futures contract on the Board of Trade.

Producers often assume, Schultz said, that if the market goes up 50 cents on cash price while TMA has a contract on a 15-cents margin, then the co-op made 65 cents a bushel. But actually, TMA may have made 15 cents ?assuming the basis stayed the same.?

It?s possible for even TMA to lose money on board margin calls. But the idea, Schultz said, for either the company or a producer is to assure an adequate margin.

?We?re always hedged on the commercial side,? he said.

A producer, Schultz said, should always realize that nobody can tell him what the market is going to do.

?It?s the future,? he said. ?That?s why it?s called the futures, and nobody knows what will happen in the future.?

He said many companies have been created to try to give farmers insight into where market prices will go, but nobody can know.

?Everybody has a different philosophy,? Schultz said. ?There can always be another Chernobyl explosion, another bomb or another drought somewhere to make prices go up. Nobody knows.?

A farmer, he said, has to realize that compared to a commercial enterprise, he is a ?long owner of grain.?

You have to look at the grain even when you are deciding what seed to put in the ground to estimate an acceptable profit margin, or whether you even can make a profit when you sell it.

Schultz said a farmer needs to look first under a heading of possible profit at what price a crop could be sold.

Then, he said, the farmer needs to look at the cost of all the inputs?such as seed, fuel, fertilizer, pesticides, land and machinery.

Then, ?in this day of government involvement,? a farmer has to look at the current crop insurance program.

?Basically, a producer is trying to learn to be a margin taker, knowing the pieces of the puzzle to put together what you can live with,? Schultz said.

?You don?t always know the highest spot in the market, or when you can make the most money. You have to know when you can make money, and market for that.?

Last year, Schultz said, farmers had both the highest grain prices and the highest input prices in history. Now the prices have backed down while the inputs stay high.

?They have to learn how to take advantage of a margin when it?s there,? Schultz said of producers. ?Producers work off a flat price. It?s tougher than our side.

TMA has people to help farmers with their marketing, Schultz said.

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