The Times They Are A-Changing'

Throwing out all your policies, procedures and strategies is overkill. But put everything on the table and rethink whether your current ways are the best or the only way to operate. Take forward purchases for example. Lenders, grain firms and others are reassessing what makes sense. There’s interest in making producers responsible for some percentage of any upward price movement that could trigger margin calls: The farmer might have to put up 25%, or 50%, of such margin calls for example. Other firms are trying to tie that right into production loans from the farmer’s bank by negotiating: e.g., “We’ll buy the 2009 grain from Mr. Farmer, but Mr. Farmer’s bank has to agree to “finance” 50% of our margin calls on that contract. If forward-selling protects the farmer’s bank, then perhaps they should help fund that protection.

Another idea tossed around is how to offer and manage forward HTAs. Traditional HTAs have allowed the farmer to pick the day to set the basis on the contract. An alternative might be for buyers to “aggregate” or “pool” harvest 2009 HTAs, for example, and leave the basis decision to the elevator manager for all the contracts, or use a predetermined formula that’s consistent for all forward HTAs. Perhaps a Midwest elevator might set all harvest 2009 corn HTAs using the basis on October 15. There’s nothing special about October 15 — that’s just for illustration.

Exotic strategies that can work well in flat markets can be killers in extremely volatile markets. Consider purchases that offer producers a small bonus on their selling price in return for the obligation to sell more bushels if/when prices reach a certain threshold that’s above current values. Those are fine until prices soar through the upper price level. A lot of farmers sold grain on contracts that obligated them to sell more grain for 07 crop if prices were to reach $3, for example. Not such a good idea, in retrospect.

These are just a few ideas — the marketplace will find others and time will sort out the winners and losers. Customer service is still important, but survival is Job 1 in these new volatile times.