One Grower’s Upside in Using the Averaging Contract

Averaging contract pros cons

Dick Blomgren is an advocate for the Landus Cooperative Averaging Contract because it's been helping him be successful. 

“Grain experts will tell you that 18 out of 21 years if you pre-sell your grain, you make more money,” said the Boone County, Iowa grower. “And, 8 out of ten years you make more money with the Averaging Contract. That means you're making more money 80% of the time as compared to just selling in the fall!”

Blomgren notes the pre-sell is just one advantage. “For us, the Averaging Contract always beats the fall corn price, and we don’t have to pay for storage and drying. You don’t have fees as high as with using a brokerage account and the 4 cent fee is settled on the back-side, so it’s not an upfront fee.”

Blomgren, who farms with his nephews and frequents the Boone location, has been using the Averaging Contract every year for several years. “We got started doing this contract because we wouldn’t pull the trigger soon enough before the fall,” Blomgren admits. “Today, it’s nice because we put somewhere between 10% to 25% of our corn crop in this contract, and from there, it’s easy. Hands off.” 

Every Penny Counts in These Conditions 

Almost hands-off, says Janette Smith, Blomgren’s long-time Grain Marketing Advisor. She notes that when using the Averaging Contract, you still have to set your basis. “That means you’re stressing over 5, 10 or 15 cents in a basis move versus a market swing of up to 60 to 80 cents when the futures move leaps and bounds.” 

Blomgren has a plan for that process each year. “We set the basis when it’s the tightest. We also have Janette, our grain marketing advisor, call us and recommend when is the best time set that basis. Every penny in these conditions count,” he said. 

No Discipline Needed

As part of their farm’s overall risk management strategy, Blomgren says he hopes the Averaging Contract ends up being their poorest sale. “I always say ‘doesn’t it make sense to at least put SOME of my bushels in this contract?’ Now, if you’re a really disciplined marketer and you watch the market all day every day and want to continue to worry about selling it every day, then this isn’t for you. But, for those that struggle to sell in advance and need something disciplined to do it, this is it. It’s a nice easy way to sell some of your bushels.”

Take the Emotion Out

Blomgren admits that marketing grain is an emotional issue. “Who’s more emotional than the Chicago Board of Trade? They react to everything in the world that happens.”

“By doing some of this Averaging Contract plan, you can take a lot of that emotion out which helps you become a better marketer,” Grain Marketing Advisor Smith responds.

“This is a risk management tool. It is literally the law of averages,” Smith says. “You are selling a little bit every day. So, you’re not going to make the best sale every day, but you’re not going to make the worst sale every day either. We have 10 years of charted data showing the high periods of every marketing year. We’re choosing that timeline for this contract.

Don’t put all of your eggs in one basket and don’t wait until harvest and have to market it all at once.

Contact your Landus Cooperative Grain Marketing Advisor to learn more.