Your Banker’s Top 6 Grain Marketing Questions

Solutions to problems have a way of gaining clarity through discussions with trusted outside counsel. Clearly originating low basis bushels is the driving force behind profitable financial statements for grain companies, and this year many regions of the US have struggled to get profitable bushels bought. Lower commodities prices also have put financial stress on our production community.  So when the lenders call, the conversations revolve around these six topics. 

1. After 30 years in business, why do my best customers suddenly have a confidence problem? Even the best of the best have confidence problems if things don’t go their way; look at how investors handled the great recession or athletes handle a slump. Both look for new solutions, but sometimes those solutions have more risk that can only be seen by talking with well-informed advisors.
2. What types of contracts should I be worried about?
   Whether it’s a banking group or a producer meeting the answer is always the same; any contract you sign where there is not a complete understanding by all parties, or you don’t know the outcome is a red flag. How many bushels were actually sold?  When will they be delivered? Are you in control of pricing or are you paying a fee for a “professional” to decide your economic fate for the next couple of years?
   
   
3. What is the breakeven point for production costs and how much of that is variable cost?
   This is a fundamental business discussion. In the worst cases, lenders may view fixed costs as sunk costs and really want to make sure we at least cover the variable number. White Commercial Corporation recently completed a North American survey on the financial strength of the agricultural community. Twenty five percent of the commercial grain facilities classified their producers as having deteriorating financial health, high leverage, and no marketing plan.
   
   
4. Who is really the decision maker on selling the new crop bushels?
   Bankers are specifically asking about taking control of next year’s revenue and making sure the origination team is talking to someone that can pull the trigger on a sale.  New crop numbers may give reasonable profits today, and the right people need to hear the profit talk.
   
   
5. What will the market have to do to get the old crop bushels to move?
   They are begging for any number that they can hang their hat on. Usually a round cash price like $4.00 or $4.50. We need to take control back with a consistent profit based message.
   
   
6. Tell me again how target contracts work?
   Most of our fills on target contracts come during the night session. The market is open 17.5 hours per day and the best way to watch it is through target contracts. The producer enters a target and you get notified when the target is hit.

There’s no magic here, and it’s important to remember Vince Lombardi’s famous quote: “It’s more important to do a few things well than a bunch of clever things poorly.” This can be specifically applied to grain marketing. Marketing strategies can quickly get very complicated. They start with priced contracts and target contracts, and then move to splitting one decision into two by either leaving the basis or the futures open. Then we have straight forward option strategies that allow you to stay in the market which then get more complicated by the idea that we need to sell options to make it cheaper to stay in the market. Finally we have the crazy contracts where we don’t know what we sold or what the price will be upon delivery. Vince Lombardi’s Packer teams won the first two Super Bowls by running the same well executed plays over and over. This spring let’s stick with our consistent well run play and help producers stay financially strong with profit based marketing.