Grain Origination: Buying Smart & Building Relationships

Part of my job at a country elevator was buying grain from farmers.  I want to be completely clear that the vast majority of my interactions were positive.  Sure, some relationships were stronger than others, but in general I liked and enjoyed working with my farmer customers and celebrated their successes.

I could tell numerous stories about positive customer interactions.  Most resulted in mutual benefit for the farmer and elevator, but I recently recalled an experience with a farmer that left me disappointed while teaching me an important lesson.  Midway through harvest he had delivered all of his contracted soybeans and was facing the reality of selling his remaining beans at a much lower price than his forward contracts.  He sent me an email noting that the river terminal (run by a large multinational corporation), while further away, was paying about 20¢ better than I was for beans and how even with more trucking costs he would end up with a higher net price selling to them.  He wondered how he could turn down the extra money just to do business with us.

I sent off a masterpiece of a response explaining why people do business with their local elevator. 

1. I explained that working with us may mean sacrificing a few cents per bushel to receive superior service and support. 
2. I pointed out that we had worked with him since he bought his inputs to proactively market grain with targets above his break even. 
3. How we had assisted him in getting his harvest done to that point in a timely and efficient manner with long receiving hours, picking up grain at his farm late and on weekends, and even parking trucks overnight for him to fill.
4. I pointed out that the terminals that pay more tend to have a longer wait time to get dumped and that people work with country elevators like us to avoid those kinds of headaches and get more done in a day. 
5. I went on to remind him that we were a small local business that was active in the community supporting local charitable functions and county fair livestock auctions and we did all this without the backing of a large parent corporation. 

The next day he sold the rest of his soybeans to the river terminal...

I felt deflated and wondered if I had made a mistake in my approach.  I knew the customer was comparing price so why did I bother to focus on service instead of just offering to pay more (whether profitable or not) to keep the bushels coming my way and save my pride?  I shared my story with one of our feed salesmen, and he said something that really hit home for me, he said: “I learned early on that I cannot be all things for all my customers.”  I started to look at buying grain differently.  I had to accept that I wouldn’t, and for that matter couldn’t, handle every bushel.  My efforts were always going to be better spent building stronger relationships with my customers and offering sound marketing advice and superior service than chasing bushels by overpaying for them.

I’m not sure how much more I would have had to pay to buy those beans that day but what I do know is that I had set our bid competitively with our local market with anticipation of turning a profit.  I won’t say I never paid a penny or two more than my posted bid for some grain, but elevator margins can be pretty slim and price matching to win business is a slippery slope.  It implies that your bids are something other than a reflection of what you can pay for grain and make an acceptable margin.

Stop trying to buy every bushel, and start focusing on these 2 ideas instead:

Buy Smart

“Do whatever it takes” sounds like a great business philosophy, but it is important to define your goal before you adopting such a strategy.  It is easy in the grain industry (and many others) to equate higher volume with success.  However, doing whatever it takes to buy more bushels is not always a recipe for profitability. 

Avoid competing for bushels on price alone and chasing bushels at any cost.  Anyone who has set bids for an elevator for any amount of time, knows what normally happens when you raise your bid above your competitors.  They raise theirs as well.  I’m not implying that you should never raise your bid, but if your plan is to set yourself apart with price alone, everyone will know how to beat you.

Another pitfall to avoid is compromising on your grain buying policies.  Lowering fees (storage, Price Later, etc.) or allowing people to use your space for free at times when you should be capitalizing on it (i.e. harvest) is more likely to cut into profitability than to earn you future profitable business.  Set policies that are competitive in your local market but that reflect your true value and the true costs of operating your business.

After all, it’s hard to merchandise your way out of poor buying decisions or policies.

Focus on Relationships

This is certainly not an article suggesting you don’t try to buy more bushels or grow your business.  However, I suggest you focus on building strong customer relationships.  Stay in touch with your customers year-round.  Go out and see them.  Strive to help them make their operation profitable and become a trusted partner in their marketing.

Stress proactive marketing.  A lot of grain is sold in the nearby or spot market.  However, focusing on contracting grain ahead, particularly before harvest, not only tends to give the farmer a better price, but can also set you apart from other buyers.  It is difficult to set yourself apart in the harvest spot market when decisions will often come down to a few cents difference in bids or drying rate or .5% difference in shrink rate.  Ahead of harvest is when discussions on cash flow, profitability, and logistics can occur.  These discussions are more enjoyable and productive.

A strong relationship won’t get you every bushel, but will help build loyalty and lead to buying more bushels profitably.

You can’t be all things for all people and won’t handle all the bushels, so focus on buying smart and building relationships.