Art of Grain Merchandising

5 Steps to Break-Even Analysis

Posted by Jeff Reardon

Jul 21, 2017 10:16:36 AM

The first step is to eliminate break even from the discussion, no grain company is in business to break-even. Decide on a profit target and this analysis will help to shape the necessary decisions to achieve the goal. Each region and location is different, but for this example the grain industry net profit target is set at 2.5 % of sales before taxes. A company with $30 million in sales will then have a profit target of $750,000. Keep in mind a 2.5% profit is 10 cents on $4.00 corn.

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Topics: Grain Merchandising

Don’t Play The Victim: Grain Merchandising Through Adversity Requires A Plan

Posted by Roger Gattis

Oct 13, 2015 11:00:00 AM

This year many of the ghosts of grain merchandising past have revisited us; low cash prices, higher than normal harvest basis levels, uncertainty of spread needs due to delayed ownership and fluctuating price later charges.  Now none of these haunts are new to those of us who’ve been trading grain for any length of time, but it has been quite a spell since all of these forces have presented such a united front against us in the same season. 

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Topics: Grain Merchandising

10 Ways for Grain Merchandisers to Make Better Forward Sales

Posted by Sherry Lorton

Nov 18, 2014 11:00:00 AM

One of the greatest weapons in a grain merchandiser's arsenal can be making deferred basis sales. It can be a great way to reduce basis risk, reduce margin call/cash flow risk, and set the stage for some big margin opportunities. As grain merchandisers, we’re good at selling what we own but it's convincing users of the opportunities to lock in future needs that elevators struggle with most. How do we learn to be a better seller?

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Topics: Grain Merchandising

Is Your Grain Merchandising Program an Activist or a Pacifist?

Posted by Roger Gattis

Nov 11, 2014 11:00:00 AM

Despite just wrapping up an intense and at times nauseating, campaign season, I am not referring to politics here. Another way of phrasing this question would be do you merchandise your bushels, or does the market merchandise them for you? There exists, in the commercial grain trading world, a perspective of buying and selling grain that would be a stretch to call purposeful grain merchandising. This take on trading grain is very straightforward, and is not entirely wrong in its execution.

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Topics: Grain Merchandising

BASIS AND FUTURES: TWO BEASTS WITH ONE BURDEN

Posted by Roger Gattis

Nov 4, 2014 11:00:00 AM

Simply stated, the shared burden of both the basis and futures is to move grain. When these signals are interpreted correctly, this task is accomplished. The point of difference being who these signals are intended for.

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Topics: Grain Origination, Grain Merchandising

Managing the Transition With Proactive Grain Merchandising

Posted by Scott Hansen

Oct 14, 2014 11:00:00 AM

In many parts of the world, grain merchandisers have just begun taking in a huge harvest. Dealing with logistics, limited space, slower than normal harvest selling by producers, and low prices have led to what appears to be a high stress situation. Focusing on how I can get through today is on the forefront of their minds.

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Topics: Grain Merchandising

Price Later Fees Part 2: Why Grain Elevators Lose Money Charging Them

Posted by Jason Wheeler

Oct 7, 2014 11:00:00 AM

Price Later (PL) Fees are unlike any other fees charged by grain elevators. For a background on PL Fees and what causes them to change, check out Part 1 of this Blog Series HERE. Even those with intimate knowledge of PL fees often don’t understand the full impact and purpose behind them.

There are 2 common misconceptions related to PL that can be dangerous to a grain elevator’s profitability if the grain merchandiser believes them:

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Topics: Grain Merchandising

Price Later Fees Part 1: Changing Fees & the Grain Merchandising Behind It

Posted by Jason Wheeler

Sep 23, 2014 11:00:00 AM

Depending on what area you are in, you may hear it called Price Later (PL), Delayed Price (DP), or No Price Established (NPE). All of these terms describe the same type of contract: the farmer gives legal title of the grain to the commercial grain handler upon delivery, and has the option of waiting for some amount of time afterward to set the price and basis. We’ll refer to it as PL for this blog post.

The fee charged for this service can vary greatly from year to year or even month to month. There are a few market forces that cause this variation: Volume, Spreads, and Basis. These factors are all directly related to the grain merchandising for the grain handler.

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Topics: Grain Merchandising

Nothing Compares: The Uniqueness of Grain Merchandising

Posted by Scott Hardy

Sep 2, 2014 11:00:00 AM

In my 30 plus years in the grain merchandising business, I’ve been asked to do a lot of comparisons. Elevator GMs want to know how their margins compare to other elevators. We do a lot of financial comparisons, but the truth is comparisons are very difficult. Location and available freight create large variances on income statements. 

In addition, every year seems to be distinctly different. New users appear in a market and our own grain bin building projects change the market. This makes comparisons even more difficult.

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Topics: Grain Merchandising

How to Avoid the Terrible Tweens of Grain Merchandising

Posted by Roger Gattis

Aug 26, 2014 11:00:00 AM

And no, this is not in reference to those somewhat awkward transition moments between childhood and the teenage years; rather, it’s referring to those somewhat awkward transition moments between two consecutive crop harvests. Whether it’s between wheat and corn harvest in the Midsouth, or bean and corn harvest in the upper Midwest, these moments have the tendency to be some of the most stressful and difficult to manage periods in your entire grain merchandising year. Even the best laid plans to deal with these time frames can sometimes take a back seat to the dynamic duo of harvest: Space and Logistics. It is the time and effort poured into these preharvest, flexible merchandising roadmaps that allow basis traders to maintain their bearings in the midst of a bumper crop followed by another bumper crop, one such scenario as we appear to be approaching this very moment.

Imagine for just a few seconds what it would feel like to be caught in this crop-to-crop squeeze, blindly trying to make it through without losing your mind, taking whatever the market is willing to give and on terms that likely aren’t in your best interest, all the while trying to keep your head above water regarding your space. Not something that one would tend to dwell upon fondly, and as a seasoned merchandiser this is a situation that you plan to avoid if at all possible. Now imagine trying to manage this scenario for three, five or even twenty different locations! That will never happen, right? Until you get the call. “Hey, I know it’s a week before corn harvest, but I have to get this wheat out of my bins to make room! What can we do?” Well, if you have farmer customers who have come out of one crop with their bins brimming with grain, have nothing sold ahead, and are trying to get said bins cleaned out and grain moved prior to the next crop, then you have the potential to be forced to deal with just such a scenario, many times over.

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Topics: Grain Merchandising