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Take Control of Grain Merchandising

Market conditions may be out of a merchandiser's control, but steps can be made to tip the scales in their favor

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Market merchandising VIA PEXELS March 2021

I believe merchandising grain and being a price-neutral grain handler is one of the most enviable jobs you can find. Merchandising skills are learnable and make it possible to provide real value to both grain buyers and sellers while operating at a profit.

Many things contribute to the overall profitability of an elevator. Countless decisions about the daily operation of an elevator need to be made and deserve thoughtful attention. Discount schedules, fee structures, grain buying policies, maximizing freight, employee hiring/training/retention and operational efficiencies are just a few things that will contribute to your bottom line. None of these operational-type decisions, however, are actually merchandising.

Successfully merchandising grain comes down to maximizing these three components: buy basis, sell basis and spreads. Interestingly, the amount of control a merchandiser has over any of these is debatable. You could ask several respected, successful grain merchandisers which they have the most and least control over, and you may get several different answers. The truth is the market will dictate each to an extent, but the more effort they put into each, the more control gained. I’ll break down each.

Buy basis

Of the three, many people feel the elevator has the most control over buy basis. After all, the individual elevator does set its own daily bids. Therefore, an elevator’s average buy basis will be a product of exactly what it is willing to pay for grain over time. Or is it?

I work with a lot of elevators, and it’s evident that many feel their competitors drive their bid, and they have very little control over their buy basis. It is also an inherent fact that the farmer will ultimately decide when to sell rather than the grain buyer being able to buy grain when basis is favorable. If the competition sets your bid and the farmer decides when to sell, how much control can you have?

Of course, an elevator cannot just bid whatever it wants and be competitive. Still, a strong origination effort can help you compete in areas other than price and improve your average buy basis. Offering a competitive bid does not mean you always have to provide the best bid. Avoid trying to compete for grain on price alone. Instead, work to set yourself apart with superior service at a fair price. Work with producers to proactively market grain at profitable levels for them. Working with producers will also lock in basis for you, giving you time to work your merchandising plan. You may not be able to control when the farmer decides to sell, but this will tend to take care of itself over time. You may buy some grain near the top of basis, but if a lot of farmers are selling, in general, that should weaken the local basis.

Sell basis

Unlike buying grain, the elevator does decide when to sell grain. Many sales are dictated by factors other than merely a favorable sell basis or profit. Logistics, space constraints and cash needs often influence selling decisions, sometimes forcing sales that do not match merchandising goals. Add to that the fact that end-users tend to set their buy basis, and many elevators feel they are simply price takers when it comes time to sell.

Planning and laying the groundwork for sales can help you gain control over your sell basis. Whatever the driving force behind a sale, it should rarely come as a surprise. Make a grain flow plan that anticipates when sales will be made and look to get good sales on the books when opportunities present themselves to avoid being forced into spot sales. In addition, strive to be your end user’s preferred grain provider. A good relationship with your buyer can make you an early call when they need quick ship grain and make negotiation on early sales smoother.


If there will be much time between the buying and selling of grain, you can’t get away from using spreads. Elevators tend to feel they have less control over spreads than buy or sell basis. The market sets the spread structure and at any given time, and nothing can change it.

There are two ways, however, an elevator can take some control over the influence of the spread on its profitability.

  1. Adapt your grain flow to the market structure. If the market shows strong carry, that is a sign to load up on grain and hold it as long as you can or until the carry goes away. On the other hand, if the market is inverted, sell as much as you can, including grain on deferred price contracts, with plans to buy it in later. You can’t change the spreads, so adapt to them.
  2. Proactively lock in a favorable spread structure. Adapting your grain flow to whatever the market dictates sounds like a great idea. Still, many elevators have limited flexibility due to logistics or a constant need for grain (e.g., a feed mill). Sometimes, the market structure may not aggressively incentivize holding or dumping grain (for instance, a carry market that nearly covers the cost to carry grain). For these reasons, most elevators are well served to proactively lock in a spread structure that supports their desired or necessary plan to move grain. The 2020/2021 corn spreads are a great example of a spread offering multiple opportunities to set different spread structures. Between August and the end of November alone (a time when an elevator should have a decent handle on its upcoming grain flow needs), there was an opportunity to set the Dec/Jul corn spread at as much as 27¢ or as little as 1¢ of carry. Just like a farmer may give up the top of the market by selling grain early, setting a spread structure ahead may cause you to miss a better spread later, but may help carry out your plan unimpeded.

With so many outside factors influencing basis and spreads at any given time, it is easy to feel a lack of control and become a passive merchandiser. However, this is simply taking on a victim mentality. Of course, the market will constrain how well you can buy, sell and spread grain, but with planning and consistent effort, you should be able to move the needle in your direction. â– 

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