Grain merchandising specialists discuss industry challenges and market dynamics

The Feed & Grain Podcast, hosted by Steven Kilger, features an in-depth conversation with Jason Wheeler and Roger Gattis, merchandising specialists from White Commercial Corporation. The duo, who also host their own podcast "The Elevator's Cut," discuss common misconceptions about grain merchandising, explaining how basis trading creates efficiency in the agricultural supply chain despite logistical challenges. They highlight current market challenges including inverted spreads, high interest rates, and transportation issues affecting grain elevators. Wheeler and Gattis also note the changing demographics in the industry, with more diverse backgrounds entering the field beyond traditional farm upbringings. Their practical insights offer valuable perspective for both seasoned professionals and newcomers to grain merchandising.

Transcript

Steven Kilger - 00:00

Hello, my name is Steven Kilger. I'm the Managing Editor of Feed & Grain Magazine and the host of the Feed & Grain Podcast. Thank you so much for joining me today as we dive deep into the issues affecting feed manufacturing, grain handling, and allied industries.

Today's episode is brought to you by the Binwhip from Pneumat Systems. The powerful dual-impact Binwhip removes the toughest buildup and blockages in industrial storage silos, without hazardous silo entry. Learn more today at binwhip.com.

We have two great guests today, Jason Wheeler and Roger Gattis, merchandising specialists for White Commercial Corporation and hopes of their own podcast. The Elevator's Cut is phenomenal and anyone who's got any interest in grain merchandising, really check it out. If you're listening to this podcast in a podcasting app, please consider subscribing, and leaving a review really helps us out.

If you have an idea for a topic you would like me to cover or someone in animal feed, grain handling, or any related industry like that, that you think would be a good guest, Let me know. There's a podcast button at the top of this podcast page on feedandgrain.com that will allow you to email me directly. I'd love to hear from you. I'd love to get your ideas and thoughts on the podcast and learn how we can make it better. But that's enough housekeeping for now. Thank you again for being here and listening and let's go on to our conversation.

Thanks for joining me today, Jason and Roger. I feel like I've known you guys for years now. White Commercial Corp has been writing an article for Feed & Grain every issue for, I think it's three or four years. And you guys have written a couple. Can you tell me and the listeners a little bit more about yourselves and what you guys do?

Roger Gattis - 01:36

Yeah. Thanks for having us on Steven. It's nice to be on this side of the microphone. Jason and I, as you said, work for White Commercial and we are green merchandising specialists, which is a fancy way of saying it. We help people in the commercial grain business, merchandise their grain, merchandise it better, help them find financing, and train their staff. We are a brokerage company, but we like to think of ourselves as an education company first and foremost.

Our day today is talking with country elevators, of all sizes, our bread and butter is probably the mid-size private elevator out there in the country and talking with those folks and helping them through whatever it is they've got on their minds, basis-related, spreads related.

Jason Wheeler - 02:26

We work with about between 250 and 300 grain companies across the US and Canada, so all over. Most of them are probably privates, but we do have a good amount of co-ops.

Co-ops seem to keep merging, so there's less and less number of co-ops, but they get bigger. It's a fun business, and we're probably known in the industry as the education, training people, Sherry Lorton and Don White wrote the Art of Grain merchandising book that's used, it's a textbook that's used by a lot of folks in the industry to train new people.

We're proud that we're known as education people and we're good at that.

And with training, we also do a lot of consulting that comes with running a grain business. We get merchandising, financing, accounting, that sort of stuff. So Roger and I operate more on that side of the business. We're a futures brokerage company is how we earn our money.

Kilger - 03:17

I always really like your articles because they're okay. Full disclosure, I've taken a lot of sessions on grain merchandising and what you must do. I feel like I always understand grain merchandising. The time I'm in the class to about 30 minutes afterward, everything is gone.

So, I really love your articles because they're very practical. They're written really well to be understandable. You're not just throwing numbers people, which I find really helpful, especially because they tend to be practical towards a lot of different aspects of your life, how to sell and how to do things like that. So those are always really great. But for layman's out there, what are some of the misconceptions people have? What's the most common misconception people have about merchandising?

Gattis - 03:59

I think we would be remiss not to mention the podcast Jason and I put on called The Elevator's Cut. Probably the biggest misconception is that whatever the basis is that the elevator's paying is how much they're making per bushel on whatever they're buying from farmers. So if they're 80 under for beans at harvest, they made 80 cents.

This could be true, but in the majority of cases is patently false.

Kilger - 04:25

That makes sense to me and that seems to be a lot of the struggle with merchandising in general is communicating with the customers of grain elevators of farmers and explaining to them what you do and why you're trying to lock in prices a year before they want the crops.

Wheeler - 04:41

As you say, a difficult thing to communicate with farmers. How are these people making money? They're doing some sort of thing to make money off of me. And as Roger said, the easy thing is if, you know, you're 70 under basis, you must be making 70 cents. The elevator is probably reselling to some user for 50 under that day and got frayed in it and all that sort of stuff. So it's not really as simple as that. I get it in that you're not making, you're delivering to a grain elevator.

You're not making some new product. You're taking my product and then reselling it, right? You're a middleman. We're in these days where it's like we've got be more efficient, eliminate the middleman and all that, but just logistically the way our business works, all the grain needed for the entire year comes at one time and it's needed for the whole rest of the year. Somebody's got to hold it. It's got to sit somewhere.

Gattis - 05:34

Until there are teleporting beams and things like that, the elevator's going to be your elevator in the sense there's somewhere that grain is sitting that someone has paid someone else for and is waiting to move to somewhere. It doesn't matter whether it's a farm bin or a commercial bin, it's the same skills that apply to any grain that has not been turned into its final product yet.

Wheeler - 05:56

The grain elevator that exists now, the 99% of the ones that are left have accepted the fact that they don't know what prices are going to do, hopefully, and so they stay hedged, they trade the basis which is a wonderful thing because it allows an elevator to buy corn for $7 and sell it for $5 and still be successful.

They don't have to compete against everybody on prices. They can just trade this basis that doesn't move a whole lot in a year. I know it seems to move more these days, but it doesn't move a whole lot in a year versus what the prices do. It's a way for them to remain successful over the years without a ton of risk.

Gattis - 06:36

It's how you get paid for providing service without taking it out of either customer's pocket. Yeah, because ultimately everyone wins in that situation.

Wheeler - 06:45

That's the goal.

Gattis - 06:46

The producers are still making cash as is the elevator. The farmer can make money, the elevator makes money, the truck driver that hauled it to the poultry processor makes money, the poultry processor magically turns corn into chicken nug, and they make money, and they send it to the grocery store and the grocery store makes money. And despite inflation, we're still buying some of the cheapest food on the planet today. So it's a pretty amazing system when it works as intended.

Wheeler - 07:11

The bankers are really making money. Yeah. God bless them though. We need the money. So it's.

Kilger - 07:19

Yeah, that's true. Yeah. It's funny. That's a good point about the cheapest food too because for a lot of people, inflation's on the rise and it's no joke. And anyone who's hurting for is, that's terrible. But when you look at European state prices and things like that, you're like, oh yeah, it's still pretty cheap here for our three-pound baggage. Exactly.

What advice would you have for anyone starting out the grain-merchandising role? Hopefully, we'll be getting a lot of new people to come to work for us and they'll need advice.

Gattis - 07:52

I would say the piece of advice is to don't assume that people that's been in the business doing it a long time or that happen to work for one of the big companies knows everything there is to know about grain-merchandising. That is not true. Don't be intimidated by people just because they're linked in service or the company they work for. I've found through my time at the elevator and on this side of the bushel that there's a lot to be learned out there.

And that's fine. But don't assume that everybody knows a whole lot more than you do. It's not a safe assumption.

Wheeler - 08:26

Yeah. I'd say there are a few ways to go with this question. On the merchandising side of things, if you're new to merchandising, hedging, and basis trading, one of the hardest things at the beginning is separating the concept price and basis from each other. Of course, I know those are different things, but you get to thinking, oh, little prices are going up, but maybe You're talking about basis and vice versa, they're two different languages, so to speak. So separating that's really good. But as far as career advice, like Roger was saying, the reason he said that people do assume, and people that have been in the business a long time do assume, oh, you work for ABCD company. You must know a lot.

Wheeler - 09:04

That company does know a lot as an institution, but just because you work there doesn't mean you do. You get some small part of the role. Some people, have different roles and are bigger than others. So, for new people, we work with the university kids a lot. Roger and I help teach a course at the University of Arkansas and There are folks who are starting out careers. Hey, should I consider this? Should I consider that?

Wheeler - 09:29

If you're pursuing the money route in your career, start with one of the big companies.

You only have to work there a year or two and then submit a resume to some co-op board or private elevator. And you got one of those big company names on your resume. They're like, Oh man, this guy must know everything. They just attribute all the knowledge of that company to you. It's great. It means it to your advantage.

But if you want to learn more quickly earlier in your career, that's not the path to go because you get one small thing to do. Usually, it's origination, which is a vastly important tool and very crucial to a grain company. You're not going to learn managing spreads and getting your hedges in, managing your position, the cash flow, and the accounting that goes along with it.

But if you work at a small private elevator or co-op locally where you're having to manage, you'll have to manage all that, the logistics, the, you name it, transportation. So it's, you get a lot more breadth of knowledge working at a country grain elevator, in my opinion.

Kilger - 10:30

Yeah, I'd imagine you get a lot more experience of just how elevators run as well. When you're at a small elevator in a location, actually getting lunch with the guys versus being in some corporate office. Yeah. Yes, that's right.

Gattis - 10:45

Good and bad.

Kilger - 10:46

Not to say anything against the abcds because those are great. Everything seems to be changing with grain elevators and it seems slower than other industries sometimes, but there have been huge technological advances and things like that over the last 10, or 20 years. What have you seen that's changed in merchandising over that 10-year period?

Wheeler - 11:07

There are grain merchandising podcasts now, that's one technological advancement. There's tons of change logistically with technology. That's the easy one with every industry. It's really advancing. I've seen things in the last couple of months coming down the pipe. Seems to make our industry even more efficient. I always think it's the most efficient industry in the world because of basis trading.

It makes it so efficient. But then I see advancement and I'm like, wow, that could make it even better. The thing is that technology is the easy one. Farmers with apps and selling on their phones and there's auto hedging and all this sort of stuff, which is good. Advancements, I'd say. So I started in 05, Roger, a couple of years before that. And the big changes are from a merchandising standpoint.

Back then and 10 years ago or whatever, most shares you get a carry in the market until mid-summer, and then maybe you get an inverse flat market. Now for three years running, we've had flat or inverted markets the whole way. Interest rates are going stronger, so it costs more than ever to carry it. Prices are high. I think that's a lot of demand-driven. We haven't had awful crops in the last few years. It's a lot of demand, which is good.

It's always good to have things that people want and if there's high demand, that's good. So I think the merchandising change in that you really have to be sharp managing deferred deliveries and all that stuff. Being more aggressive in selling out into the future is what I've seen lately. I don't know.

You hesitate to say over the years I get worried when things happen 08 and 12 that we had a drought and everything went and I talk to older people like yeah this sort of stuff it happens from time to time and it's cyclical it comes back and they always end up being right but I freaking out the whole time and now it's three years in a row I'm never willing to say this is just how it is now and it's always going to be this way I've taught me that's not usually the case but this is higher demand merchandising.

Gattis - 13:14

My thought on this is Steve is ancillary to merchandising in general and it's the demographic makeup of who is getting into the merchandising field. And again, as Jason mentioned, we do some work at the University of Arkansas, and the students that are taking the classes we help with, and we've been helping for at least years or maybe a little longer, has changed from Hey, 10 years ago, it was all male farm kids from East Arkansas farms that came in to get a little experience on basis trading and how it works.

Probably half of them go back to the farm and use that for grain marketing, some go on in the industry. But now you're seeing the folks come into these classes and graduate. They're not all from the farm. I think the kids from the farm are almost the minority. Now you're seeing people from, they might be from a rural area, but not a farm background.

But a lot of folks from urban areas and the demographic shift from all male is at least half and half male female. And the overwhelming majority of the folks that come out of that program are getting hired by green companies and going out and working. So we've seen that shift as well. Who is making up the population of green merchandisers out there? As more and more of the baby boomer generation retires, this trend is probably only going to increase because there's a dire need for skills out there. The people who are willing to learn it are being picked up pretty easily.

Kilger - 14:33

That's a good point. You see it at trade shows too. When they have student days, you're seeing more and more diverse female students, which is really nice when 50% of the people coming through are female because that's what the population is. And that's really nice to see. Let's face it, an old idea of, oh, I want someone with a farm background to work at the elevator. It's getting really hard to do. Especially with high prices.

Exactly, like you're just not finding them, so it is really nice to see. Speaking of high prices, we talked a little bit about inflation and all the other, this terrible storm of economic problems that seem to coming together at once. What do you see as a challenge merchandisers are going face over this next unpredictable year?

Wheeler - 15:14

As I said earlier, with the spreads being inverted, corn and beans the rest of the way here, we're already inverted for the rest of the year pretty much in both commodities pretty severely and we got higher interest rates never and high prices. So as a grain merchandiser holding inventory costs a lot, depending on who you talk to and interest rates and how they figure it, 8 to 10 cents a month in cost to carry a bushel of beans which is crazy.

And they carry, there is no carry to pay you to compensate you for that. So can Basis make it up? Probably not.

Wheeler - 15:50

In particular, my answer to this question is on beans. Early in this season, we saw tremendous margins on beans, guys buying beans and reselling them even just a month or two down the road or for JFM delivery after freight and everything good margin some of the best margins they've ever sold just selling them as they're buying them but for deferred delivery.

So they got off to a really good start and they feel like we're in good shape now let's see how basis how good could it really be got this good this early it always gets better later no especially not with the market structure like this. All those really good margins that happened early were great, but I worry that guys are going to give it all back. I think folks are going to lose a lot of money on beans that want to try to carry them too long this year. That's what I foresee with the interest costs and the spreads the way they are.

Gattis - 16:41

The big challenge too is just a continuation of the logistics issues. This past year you had threats of railroad strikes, a shortage of truckers, high diesel, Mississippi River drying up to a trickle. A day delay in any of those modes of transportation takes more than a day to get back to normal. We've been going on for months with the river issues, and years with the truck and rail issues now. There's no reason to expect that to change going forward. Merchandisers are going to have to balance margin against logistics. And they do that every year.

But this year, it seems like it's going to be more compressed because once trucks start moving for other things like fertilizer and spring, there's less availability. And then when all the farm bushels do hit the market, guess what happens to an end user? Whenever a spot sale is made by a farmer, he gets to deliver that bushel. If you've got a contract you've made prior, you're probably going to get a call from the buyer and they'll say, hey, can you wait till next week to deliver this or two weeks? And that happens all the time So I think to get ahead of that logistics logjam is going to be the challenge going forward through the spring and summer for most merchandisers.

Kilger - 17:56

Yeah. It sounds like they're up here. I don't envy it. That's certain, but let's cut to the chase. If people want to keep up to date with the talk a little bit about What's happening, I've heard of this great podcast you guys do call Elevator's Cut which I've listened to a few episodes of and I have to say is amazing because you guys really do, it's fun, it's entertaining to listen but also you give a lot of information. Can you guys talk a little bit more about the Elevator's Cut?

Gattis - 18:23

No, it started out project of catharsis, and years ago there was a news reporter somewhere around Wichita interviewing a farmer about the local crop that year, started out as a good broadcast because they were talking about wheat and they were standing in a milo field. That was the first giveaway. But then they got to talking about a year when wheat futures got high. So basis backed off, which is pretty normal. They started talking about the elevator, the basis for the elevator cut. It was rife with inaccuracies.

And of course, ag Twitter blew up the next day and wheat. Jason and I took that and said, this is when the podcasting thing was kind of rampant up if we ever do a podcast. We at least have a name for it, it'll be the elevator's cut. And lo and behold, three or four years down the road, we found a microphone in a storage closet and just started recording.

Wheeler - 19:15

It's been a fun run. Like I said, for a few years, we've been doing it. We started working through some concepts and got educational, but have fun with it. Then we got through the three things Roger and I know about and we're like, now what do we do? We've done some really fun interviews. We got to meet established relationships with all sorts of cool people, including a guy we interviewed from England on the podcast. We got to meet him, an awesome guy, and lots of other folks.

So we like to interview people because we ran out of things for a few episodes. I don't We do. Yeah. Like you said, some of the stuff you talked about today, what's going on right now? We like to do stuff on that, interview smart people that are doing cool things. So it's been fun.

Gattis - 19:54

Good feedback. As long as we get feedback and Jason keeps up with the stats on the downloads, I guess we'll keep doing it.

Wheeler - 20:01

Yeah.

Kilger - 20:01

That's good. You guys beat us. You had your first live podcast a few weeks ago, right? At Country Elevator Conference?

Multiple speakers - 20:07

Oh, yeah.

Kilger - 20:08

Apologize to anybody who's in the room.

Wheeler - 20:10

I didn't do that. No, we, yeah, they had us. It was really, really nice of NGFA to have us on there. And we just, we put a panel like we tend to do, get smarter people than us. Absolutely. Put them on the table. We had a panel of a few merchants and bankers just to talk about the upcoming stuff for 2023 and what merchandisers should be doing.

Wheeler - 20:32

It wasn't much of us talking. It was us just getting it going and all that. So hopefully it was useful once we stopped talking and everything, but we recorded it. And so if anybody wants to listen to it, you can look us up on whatever medium you listen to podcasts.

Multiple speakers - 20:45

You guys just figured out journalism, right?

Kilger - 20:47

That's... Then you to talk to you about things. That's the whole job. Another feather in our hat. Put it on my LinkedIn. I'll be linking to Elevator's Cut and all that stuff in the show notes and on the website. It really is a great podcast. Thank you for joining me today. Thank everyone out there for listening and stay safe out there.