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You Can't Merchandise Your Way Out of Overpaying...

Grain elevator managers and merchandisers make many daily decisions that include selecting grain policies, buying grain, managing spreads, and seeking profitable selling opportunities.

There is a lot that goes into profitably running a grain elevator and I keep coming back to these four key ideas that lead to success.

Intentional policies are key to profitability.
Avoid setting policies simply based on what the competition is doing or because it is “the way we’ve always done it.” Instead focus on profitability for the elevator and avoiding unnecessary risk while being fair to your customers. The contracts you offer, pricing deadlines, fee structures, procedures for staying in balance, and spread plans are just a handful of the many things that affect your bottom line.

You can’t merchandise your way out of overpaying.
Paying a little more to get your hands on grain figuring you just have to do a little better on spreads or make a better sale to make up for it is a recipe for disappointment. It also makes it harder to pull the trigger on spread and selling decisions when you feel you are working from behind. Local competition certainly has plenty of bearing on your buy basis. However, avoiding the urge to lead the market, shifting focus away from spot cash value to targets and selling ahead, as well as selling yourself and your services can all help move the needle toward better ownership.

There is often more money to be lost on spreads than made.
I will admit some recency bias on this one as the last couple years have seen many elevators that held out for another penny or two of carry early on end up rolling short positions at steep inversions, but I still stand behind this idea. Proactively setting spreads is always about playing defense. Think realistically about how much opportunity you might miss versus how much downside risk there is if you don’t take action.

Selling is everything (else).
I certainly have more discussions with merchandisers regretting not making a sale or not selling more than I have with them regretting a sale. Of course, plenty of sales are made only to see basis improve, but if a sale is profitable, it will never be wrong. The most successful merchandisers I work with are always aggressively seeking selling opportunities and are ready to pull the trigger.

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Grain elevator managers and merchandisers make many daily decisions that include selecting grain policies, buying grain, managing spreads, and...

Read More