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Is the Grain Elevator Business Model Broken?

Let Me Give Away the Ending: No

Despite years of articles predicting the irrelevance of the country elevator, it continues to be an important part of the industry. A steady trend of adding storage space and upgrading handling capacity and speed has been met with a steady increase in demand for those services. The simple and compelling truth that producers and users are not well-suited to meet each other’s needs year-round has created a place in the industry for an entity that is well suited to meet the needs of both.

It’s vital, however, that grain elevators keep a steady focus on why they exist – to meet the needs of the market. Grain storage space, along with professional and efficient handling and operation of that space, always will be an important part of the business. A problem arises when the grain trading arm of the elevator becomes focused on a single approach to how and when the grain is bought and sold.

Do What The Market Needs
In a carry market, the path is clear. Get ownership at the point of greatest supply, hold until basis improves, and sell – all while managing grain condition, logistics, and cash flow, of course. Recent years have held up a big flashing sign indicating that this approach does not work equally well in all environments. Even though the elevator is set up around buying and holding, a stubborn insistence on carrying unsold grain too long creates a lot of pain in an inverted market.

The elevator will put product in space and keep it there for a while every single year – if that won’t change, then what needs to?

Remember that the elevator exists because of a need for a service – it solves problems for producers, users, and in a larger sense, the grain market itself. While acknowledging that normal grain elevator processes will happen, it’s important always to be asking “What are the problems that need solving?” and adjust policies, practices, and the timing of decisions to solve those problems.

 

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