A good grain merchandiser, much like a farmer, has quite a few responsibilities, all very different, that must be taken care of in order to be successful. In addition to grain origination, merchandisers also work with farmers to create a profitable grain marketing plan and put targets on contracts, all in an effort to help manage risk.
Jen Pemberton, Grain Merchandiser and Certified Crop Insurance Agent at Deerfield Ag Services, wears all these hats and then some. In doing so, she develops a comprehensive plan for each individual client that generates the greatest possibility of success.
Obviously, there are variables that can’t be accounted for, such as fluctuating market prices and weather, but there is one consistently solid piece of advice that Jen gives to every one of her clients. “Our big message that we’re always giving is targets, targets, targets,” she says, referring to locking in target orders ahead of time.
While some farmers may try to hold out and wait for a higher price at which to sell their grain, the unpredictability of the market almost always suggests that this can be a risky decision.
“In 2012, we saw a big rally, and we saw prices go really high and in that case it kind of hurt all the education we had been doing, because it rallied, people locked in their prices, and the market went higher once they delivered at harvest. But when you look at history, that happens about one out of every 10 years,” she notes.
“You’d generally be better off selling ahead of time and having a plan than waiting and just taking the prices available to you. There might be a year or two that you had a higher price at harvest, but usually, the high comes before harvest.”
Jen is careful to warn, however, that anyone looking for detailed speculation on which direction she believes the market is headed might be disappointed.
“We are not price predictors. One line that we’ve always shared is that we do not speculate on the market. The market can be very crazy and go a lot of places and do a lot of things. We’re never going to give an opinion on which direction the market might go. It’s going to go up at some point and it’s going to go down, but we never know where and when, which is why we recommend they lock in their prices. You never know.”
A new strategic tool that Deerfield started this year to help farmers have a successful and profitable year is the averaging contract. It’s essentially a 14-week period, from April into July, wherein the same amount of bushels will be sold throughout that period, and the farmers will end up with the average price.
“Basically, this is going to give them an average over that 14 week period and if you look at history, that 14 week period is typically when you see highs in the market for that year. That’s where we’re at, at this point. We just felt that this was another marketing tool, so we still encourage everyone to put targets in, we still encourage them to do forward contracts like normal, this is just one another tool to help manager the risk,” Jen notes.
At the end of the day, the job of the grain merchandiser is to ensure farmers have the greatest chance for profitability in a mostly unpredictable market. Jen says helping clients successful is what makes her job rewarding.
“I love talking to farmers. It’s exciting when they’re delivering and their contract price is above market price and it really makes them feel good about what they’re doing and makes me good about what I’m doing. I just like to help people.”
Five steps to managing risk:
1. Know your cost of production
2. Know your bushels
3. Have a bushel guarantee
4. Calculate what target price should be
5. Get target price in