4 min read

5 Actions to Take Before Harvest

5 Actions to Take Before Harvest

Take advantage of this transition period to reflect, strategize, and prepare for the upcoming season.

Summertime in the grain business is both a time for wrapping up and a time for gearing up. Just as we get the last of the old crop grain merchandised, we find that new crop is fast approaching just around the corner.

This transition period is a great time to reflect on what happened this past season, take stock of where things stand right now, and get some planning done for the upcoming season. To that end, here is a list of five actionable items that has proved to be indispensable for preparing the merchandiser.

Plan your anticipated grain flow for new crop
You’ve heard it said the process of planning is more important than the plan itself, and this certainly holds true at the grain elevator. Depending on your time in service, you may have a really good idea of what the grain flow in and out of your facility(s) is each year within a small percentage of bushels, but does the rest of your team know this as well?

Even with many years under the belt, planning just when and how much you expect to dump and ship out throughout the marketing season, as well as when bushels go onto and get priced out of storage/ DP, come off farm, etc., can aid tremendously in both determining spread needs and setting up logistics. Not to mention the benefit of having a good idea of what your cash flow needs may be each month based on this plan.

One key consideration in determining what a
reasonable margin might look like this year is higher interest rates.

As the crop conditions change throughout the summer months (as they inevitably will), you should adjust your plan accordingly based on local conditions. The best merchandisers will go back after harvest and amend their grain flow to what transpired and keep doing so each month until the last bushel leaves the elevator. After a few years of doing this, they have a solid set of data points that lend increased confidence to making their yearly merchandising decisions.

Get a handle on logistics
The best laid plans for efficient handling and merchandising can quickly come to naught if the freight component fails to materialize as expected. This past season alone we’ve run the gauntlet of a shortage of grain trucks/drivers, railroads underperforming, and low water levels snarling barge movements.

While many of these things are beyond our ability to control, we certainly can plan for what to do if worse comes to worst. Aside from the actual movement of the grain, you must also consider what the end user/export facilities are shaping up to look like for harvest and beyond.

  • Will your barge loader be able to handle harvest if the river is down considerably?
  • Will your feed mill take your contracted bushels on time if they’re buying a lot of farm grain in the spot market on a board rally?
  • Will any of your end users be performing facility upgrades that may not be done before harvest?

One slight hiccup in logistics can have a domino effect for days, weeks and even months. Are you prepared to handle such a scenario?

Update and communicate grain policies
This is something that can be overlooked but is also one of the key aspects of customer service for the grain elevator. Whether it be a change in discount schedules, payment policies, storage/DP rates or drying charges, any such changes made going into harvest need to be communicated clearly and abundantly to your farmer customers.

Something as simple as a note slipped in with a storage statement or grain settlement can sometimes be all that is needed to get the message out. Other items that bear mentioning are pricing policies, such as old crop DP rolling back into storage with the start of the new crop season or any changes you may make to rolling of basis/HTA contracts and/ or pricing deadlines.

Your customers probably don’t like surprises, therefore, you cannot make your customers too aware of changes being made to policies. The worst thing is for them to find out about changes after the load is dumped.

Set attainable margin goals based on reality
After the last few years of larger than typical basis swings over shorter spans of time thanks in part to the recent inverted market structures, and the fact that many grain merchandisers realized some of their best margins ever from basis trading, setting expectations going into this new crop season is vital to being profitable again this season.

One key consideration in determining what a reasonable margin might look like this year is higher interest rates. Not long ago the cost to carry a bushel of corn was at or just under $0.02/month; now that number is closer to $0.035 in some instances. Pair this cost with corn spreads trading below carrying cost at the elevator, especially to the months of next spring and summer, and it becomes very apparent that current market structure does not appear to be set up for above normal margins. Add to this the fact that many end user/export bids for new crop and deferreds are currently below where they were at this time last year, and you can almost hear the margin potential being squeezed from both ends.

In light of this reality, it is imperative that grain forward contracted for and spot priced at harvest be bought at a buy basis that at least leaves open the potential for close to normal margins. The old saying holds true: you can’t merchandise your way out of overpaying for basis.

Think through your worst-case scenario
This is an exercise the grain merchant would benefit from doing each year to minimize the shock that sometimes comes when unexpected circumstances arise.

What if your end user shut down just as you’re trying to make space for harvest? What if your lender pulled back just as you began building your book of new crop grain? What if spreads changed in a significant way between now and post-harvest? What if your competition keeps bidding up even though they are full and so are you? What if your end user changed discount schedules on you halfway through harvest? What if you can’t meet the specs on a sales contract because of adverse crop conditions at harvest?

This exercise, done properly, can be a great way for you and your team to stress test both your merchandising plans and your business overall.

Being aware of what impacts your ability to generate profitable margins, understanding how all the pieces work together, and knowing how to pivot to plan B, C or D when called upon will go a long way to helping you protect and grow your grain merchandising business.


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