Avoid a Logistics Logjam

4. “Just in case” — It’s wise to include a shipping ‘fudge factor’ — the slowdowns that are inevitable when legs break down or the weather won’t cooperate.

Shipping capacity has nothing to do with the volume of grain you sell; it’s a measure of the physical limits of your operation. (note: Some elevators also run direct farm to terminal positions which also require logistics planning.) To ignore logistics and transportation is to risk a bottleneck that someday will cost you money.

Make it routine

Regularly running a logistics worksheet will help you better merchandise your firm’s grain. You’ll be less likely to be unexpectedly forced to sell into a weak basis if you’ve planned ahead based not just on basis goals, but on shipping needs and constraints as well as cost of transportation at varying times.

Getting sales booked early at good levels, rather than at the best possible levels, is sometimes the best approach. That may increase your flexibility, maximize your shipping capacity, and let you keep shipping when others may be forced to sit idle, trying to outwait the inevitable basis sell-offs.

Use your logistics worksheet for preliminary harvest planning as well. Write down your bin space, subtract projected beginning inventory, and you’ll have a rough idea of how much grain you can receive without having to ship. Then add in your total shipping capacity and you can determine the maximum volume your operation can handle in any given time frame.

This simple example shows you can receive 700,000 bushels of grain during October/November as long as you are also shipping at capacity. If you think your volume projections are realistic, you know right now that you must make sizable basis sales and ship every day during harvest. Selling more than 300,000 bushels won’t help in this case — according to your own blueprint this is the limit of your facility’s October/November shipping capacity. If you think receipts will exceed the calculated maximum, you need other arrangements such as going on the ground. The value is in knowing early, well before harvest, what you’ll face later, giving you plenty of time to make careful management decisions.

In 2009, the March USDA stocks report shows that there will be almost as much grain to move before September 1 as last year’s record second-half disappearance of 6.46 billion bushels of corn and soybeans. This year there are about 6.3 billion bushels to move, and managing logistics and transportation effectively will be key to maximizing profits.

What goes up . . .

What you buy and receive you must eventually liquidate. Don’t get lulled by weak basis and wide futures carries, continually adding to a long basis position with no thought to the logistics of how or when you’ll move the inventory out. The basis (carry) will eventually peak, and you’ll want to be able to ship fast enough to capture those merchandising gains.

Monitoring your logistics position also lets you manage your purchases and bids. Setting daily bids against premium markets can make you look great compared to your competition, but it’s a loss waiting to happen if you can’t execute to the best market. Buying against train values can be a trap if cars aren’t available.

Tools don't build the house

A logistics worksheet by itself won’t make money for you but it will keep you focused. Combine it with a detailed daily position Report, adequate working capital and bank credit lines, and a solid feel for today’s merchandising environment, and you’ll have the tools you need to “build your house.”