Now, what I said to the farmer next might be considered blasphemy in the cooperative world...
Recently, I was speaking with a farmer about some of the marketing alternatives we offer at Landus Cooperative. The grower was surprised when I mentioned a large portion of the grain we buy comes from just two types of contracts: the cash contract and the forward sale contract.
Multiple Alternatives: Both are VERY effective and useful for a strong marketing plan. In fact, many of the other contracts we offer are really designed for the person that didn’t do a great job of marketing grain ahead of time and is, to some degree, playing a little catch-up. Now, don’t get me wrong, all of our marketing alternatives have a time and place and can be very effective for a specific situation. You can decide which alternative is best for you using this matrix.
Cost of Production: As a grain marketing team, we’ve spent a lot of time discussing forward marketing contracts and how important they are for a strong marketing plan. When a grower chooses to sell for a specific time in the future, they first need to have a pretty good idea of their cost of production. This is where we believe all good marketing plans start.
Don't Pay Storage: Now, what I said to the farmer next might be considered blasphemy in the cooperative world. “I would love to get to a point where farmers NEVER paid storage to the cooperative.” I would rather see farmers forward contract their grain. If the price for harvest delivery is beneficial, why not sell ahead and remove the expense of storage?
Advocating for Your Grain: You see, grain marketing is different for the cooperative than it is for the farmer. As a farmer, you are trying to obtain a cash price above your cost of production. When the opportunity presents itself, and the cash price works, you should sell, whether that is a cash or forward sale.
However, our grain marketing job is to obtain a better level at some point in the future than the where the market was on the day we purchased the grain (after costs like freight and interest). And through the process of hedging and basis trading, we’re able to accomplish that regardless of the cash price of the grain.
Price Kickers: These two types of grain marketing can (and do) complement each other nicely and add up to a win/win for both the farmer and the cooperative. This is one reason why you occasionally see us put together a very specific one-day special. These “price kickers” are designed to get you a favorable cash price and allow us time to work with end-users in various parts of the world (like Mexico).
*Download the Landus Cooperative app to get price kicker alerts.
In closing my conversation with that grower, I urged them to look for those opportunities to forward market at levels that make economic sense for their operation. Let us know what you are trying to achieve and we’ll work to help you accomplish your goals AND the goals of the cooperative.