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Rockefeller's Roadmap for Profitable Grain Merchandising

Rockefeller's Roadmap for Profitable Grain Merchandising

Leveraging wisdom from tycoon John D. Rockefeller can translate to sustained success for grain elevators

“The person who starts out simply with the idea of getting rich won’t succeed; you must have a larger
ambition. There is no mystery in business success. If you do each day’s task successfully and stay faithfully within these natural operations of commercial laws which I talk so much about, and keep your head clear, you will come out all right.” - John D. Rockefeller


A great deal has been written over the years about John D. Rockefeller, both positive and negative. Whatever your personal opinion of the man, you have to admit that he knew how to make money. He is widely regarded to have been the richest person in American history, in terms of percent of American GDP, even more so than Jeff Bezos, Elon Musk and Bill Gates. His personal fortune was worth 1.4% of the total U.S. economy at the time of his death in 1937. This is even after his historic giving to philanthropic organizations.

The quote above is particularly appropriate at this time when you think about the job of merchandising grain at the grain elevator. The changes in operating costs and the dramatic increases that have occurred in almost every aspect of running a grain business have led to a great deal of anxiety and stress. We need to look closely at the lessons that Rockefeller shares with us.

“ ... have a larger ambition ... ”
It is critical that you have some larger goal or destination in mind when merchandising commercial grain. Just trying to hit the high on a spread or get a huge push on a mayday weekend bid in the summer might feel great and make a month-end look good, but can often open you up to a worse outcome on the rest of the grain for the year. The most successful merchants have an overarching set of goals that allow them to keep things simple and remain focused on the bigger picture of making money on their entire yearly position. This means removing spread risk early when possible, selling meaningful bushel amounts at reasonable grain values when they become available, and not fighting against the spread structure to try and hit a mayday bid that only lasts a day or two.

These merchants have a higher purpose that drives them. That purpose includes such things as enriching their community, helping their farmers be successful, providing great service to their end users and their producers, passing on a successful business to the next generation, being well respected in their community even into retirement, or whatever great big idea can motivate them to long term success.

“ ... do each day’s task successfully ... ”
The long term, successful merchandisers in today’s market have some key things they do that enable them to be consistently successful. They approach their merchandising in a way that is thoughtful and logical, keeping in mind those long- term goals that drive them. These characteristics apply regardless of the crop yields or market structure.

First, they know the importance of harvest basis ownership. Consistently throughout the years, the biggest indicator of a grain elevator’s success is how much basis ownership they have once harvest is over. They have a consistent message throughout the year to help their growers lock in good prices on simple forward contracts to help them avoid any marketing costs on their crops and lock in good prices when available. They also have policies in place that are simple and straightforward. These policies help preserve customer relationships with their transparency and are not driven to extract fees from their customers. These merchandisers understand that generating their revenue from basis and spreads is more rewarding and profitable for all involved than what they can generate in fees.

Secondly they trade their bushels as the market structure dictates. When there is no carry or the carry is not large enough to cover the cost of carrying the grain, successful merchants are aggressive sellers early in the year. They know that thinking, “it has to get better” is a trap because hope is not a strategy. Conversely, when the carry in the market meets or exceeds their costs, these merchants set these spreads to ensure their ability to carry grain and they have strong banking relationships that allow them to hold the grain until their end users need it.

Lastly and most importantly, they are decisive. They have a basis goal in mind and when the buyer throws it out, they sell it. They have a plan to set the market structure and when their target hits, they execute. They know what it takes to cover the ever-growing costs of running a grain business, so when pressure mounts to overpay for bushels that they can’t make money on, they hold firm. They don’t chase unprofitable bushels.

Thinking in these terms every day is what leads to successful merchandising. Successful merchandisers focus on the events and things that are manageable and actionable. The rest is beyond their control or influence, so they don’t spend time and anxiety on that.

“ ... keep your head clear ... ”
How does a person in today’s era of information overload and access keep their head clear? This is probably the biggest challenge facing people today. They are constantly bombarded with opinions and analysis of what the markets are going to do, new complex contracts they should offer their farmers, weather reports from every corner of the globe, and constantly changing geopolitical news that “could affect the market.”

Analysis paralysis is real. People love choices, but hate making decisions. The more choices and noise you have, the harder it is to make a decision. It used to be that the folks with access to the most information won. Now everyone has all the information all the time. The ones that win now are the ones who can easily eliminate all the extraneous information quickly. The most successful grain businesses are those that focus on the simple, actionable things.

What’s important now?
Taking all of this into consideration, let’s talk about what you can take action on right now. At this point, harvest is already over. How does your harvest basis ownership look? If it’s not where you want it, can you start helping your customers with unpriced grain by putting in target orders for them? Also, now’s the time to start planning for next harvest. Winter farmer meetings are a great way to get the ball rolling on forward contracting and target orders.

Take a look at where you stand in regard to the market structure. Is there carry that pays at or above your costs? Where will your average stand if you locked in what you haven’t already set? Do you have the proper line of credit to carry it all? If the carry isn’t covering your costs, what’s realistic logistically to move before January/February/March?

Now that you have a good handle on what harvest basis is or was and you know the current market structure, what will grain values be in your area this year? What’s a reasonable basis goal to sell? Can you communicate with your buyers early and let them know your goals and see how you can help them accomplish their goals?

In summary, the best merchandising is simple. Your ability to lock out the noise of all the information that can distract you will, over the long haul, lead to the level of success that will allow you to reach your big goals. Give yourself permission to only focus on the things over which you have control and ignore or minimize the things you can’t. Free yourself to be successful. Reduce the stress. Most of all, focus your thinking around reaching those big goals that matter most to you and your business.

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