Elise Schafer, editor of Feed & Grain: Hi, everyone, and welcome to Feed & Grain Chat. I'm your host Elise Schafer, editor of Feed & Grain. This edition of Feed & Grain Chat is brought to you by WATT Global Media and Feedandgrain.com. Feedandgrain.com is your source for the latest news, product and equipment information for the grain handling and feed manufacturing industries.
Today, I'm joined on Zoom by Mike Hogan, corporate origination manager for CGB. He's here to talk about the value of good communication when it comes to getting those grain contracts signed. Hi, Mike. Thanks for joining me today!
Mike Hogan, corporate origination manager for CGB: Hi, Elise. Thank you for having me. Really appreciate it.
Schafer: Yeah, no problem. Now let's get right into it. Even experienced growers can find grain contracts complicated sometimes. Can you break down the complexities of these transactions and how merchandisers can help producers better understand them?
Hogan: Sure, that's a great question. That's one that’s probably been a little bit more complicated in recent times, just due to some of the new structured and option-based contracts. There's a lot more to some of those types of contracts that are out there. But back to the main point of what can make a contract. So difficult to understand from a producer's aspect is one, just the sheer volume of stuff that's on the contract. I think as a steward of the industry, part of it is making sure that we're very clear on what we want to relay to the customer from that perspective.
A lot of times you really have a template of a contract that will have very similar terms, regardless of the contract type that is out there. But then you're also filling in key things that are mainly — what's the price, what is the delivery timeframe, as well as where's this going to, specifically — and it's not always the elevator that the merchant is talking through. You want to make sure that all those terms are very, very clear on that. Also, if there's anything special that goes beyond just the typical contract that you're doing, making sure those are well noted and clarified kind of front and center on the contract. I think those are some of the things that that can benefit [the process] along with just some of the contract types that can also be a little bit confusing, so to speak, out there.
And again, our job is to make sure that those are really well clarified. From that, a couple of things that I think are key to the understanding of the contract is that contract actually starts with a verbal agreement between the producer and the grain merchant at that time. And then the paper part of the contract is really confirming what took place during that conversation, and that agreement for the elevator to buy grain from that producer. I think from a producer perspective, when they received those contracts in the mail, they really want to look through that to make sure that what was talked about is also represented on there. And if it is, go ahead and sign that because that also protects them once those contracts are signed. So, I think that's a very important part of it from that standpoint.
Schafer: Excellent point. Now, in your experience, how does a strong relationship with producers benefit grain merchandisers, and what's your advice for cultivating these relationships?
Hogan: Moving a relationship beyond just transaction is really key. So, the ABCs that I think about of forging that relationship and why it's beneficial to me is — the first one is consistent communication. You want relationships that are built over time, not through transactions. And it takes some creativity on the part of a merchant generally, to reach out to a producer, even when there's something not to transact or a contract to go get signed, or, ‘Hey, you owe me X amount of bushels by this Sunday.’ You know, those are typical conversations that we have with a purpose.
Oftentimes, just checking in what's happening on the farm. What are some of the problems, issues, opportunities they are trying to solve for those go a long way in showing the producer that you're on their team. To do that, we know from being in the industry, producer profitability is pretty well linked with grain industry profitability, whether you're a seed company or a grain elevator like ourselves, when the producer’s doing well, the rest of us are doing [well].
I think the other part of it, too, is understanding that when you are an elevator, working with the producer and understanding, almost kind of trading along with the elevator, there's some good opportunities that can be found that are very beneficial for both the producer and the elevator. Sometimes we see when the markets are maybe showing that bushels need to go in non-traditional spots — maybe a river loader all the sudden becomes a railroad for whatever reason — when that happens, knowing where grain is available, who might have it and who can hit those delivery timeframes can be very, very beneficial. That can open up extra opportunities to not only the grain elevator, but also to the producer. So having that relationship, as you talked about, can really help.
Then the third part of it is just for clarity. When there are problems — we talked about the complexity of grain contracts — sometimes there can be misunderstandings with those, or sometimes those need to be adjusted or amended because harvest is delayed and the producer needs to push back the delivery timeframe. Some of those conversations become very, very complicated, and even adversarial at times.
If one doesn't have the proper relationships set up with folks to be able to do that, or if there's a breakdown at the elevator going the opposite direction, how can we relate that to the producers and make sure that we've got the good, solid relationships set up so that way each person can run their business to their full opportunity? Yet things happen, and we need to make adjustments as those things happen. And that really only happens with good, solid relationships.
Schafer: Now, as mobile apps make it easier for producers to execute grain transactions from their phones, what challenges does this present for grain merchandisers and what are some benefits of this technology?
Hogan: Like anything, there's always pros and cons to this. We'll start with the cons list of it. It's just impersonal at the end of the day. So one has to [consider], is the producer making the best decision, maybe without all the information, right? When they're doing some of these things that having an interaction with a grain merchant can provide them, that's something just simply a producer wanted to do XYZ, but maybe that didn't come through in the transaction — the proverbial ‘I want to sell, but I ended up buying’ type of thing for those of us that have ever done TD Ameritrade, for example, on some of those items. Just kind of that fat finger possibility and because of that — the impersonality with it — what if there's a problem? How are those things addressed? Or do they become known fast enough for both parties to take appropriate action and mitigate any potential losses or risks, etc., on it. It can be difficult from that standpoint, and just, it is impersonal.
Now, the benefits. There are a lot of benefits as well. One, it opens up a new world for the producers, they have a large selection of abilities to make grain contracts, have the ability to do it at any time of the day and to look at multiple markets versus trying to tediously go through and make phone calls, they can do that kind of all at once — literally from their pocket. So, that is highly beneficial from a merchant standpoint.
As I think the industry starts to move more towards that, it probably frees us up for more value-added tasks. How can we arm our producers with valuable information so that way they can make the best decisions. And maybe we're not taking an extra five or 10 minutes always writing up every last detail of the contract, but we can have that kind of market appropriate conversation with them and move forward. It's certainly something that I don't think many in the industry are there yet, where it’s full-fledged grain contracting at this point online, but it's certainly starting to move in that direction. And before we know it, it will be here.
Schafer: Thank you for your insights today, Mike. That's all the questions I had.
Hogan: Well I really appreciate it. Thank you for allowing me to visit with yourself and your viewers today.
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