ARTIEMEDVEDEV | BIGSTOCK

Jan 20, 2023

4 keys to grain merchandising success

Building a strong merchandising foundation is key to success when other responsibilities take priority.

There are many tasks and decisions to make every day while running a grain elevator. Operational tasks, logistics, human resources and customer relations are just a few items that consume a great deal of time and attention. These tasks are essential and certainly contribute to any company’s overall success and profitability, including grain elevators.

Unfortunately, they also tend to demand immediate attention leaving less time and energy to spend making actual grain merchandising decisions.

Giving ample thought and attention to making good merchandising decisions is important. This may not require a lot of time, but conscious awareness can make a big difference.

Merchandising profit comes from three areas: buy basis, sell basis and spreads. A company’s policies also significantly impact merchandising margins. The key to successful merchandising is managing these four items.

I have spent time merchandising at a country elevator and now spend my time trying to help other elevator managers and merchandisers. In my interactions, I keep coming back to four concepts that come up over and over.

Keeping these as the foundation of your merchandising decisions will go a long way toward profitability. It’s also interesting to reflect on how well I stuck to these principles when I sat at the elevator desk and what lessons I’ve learned since.

1. Intentional policies drive profitability

The contracts you offer, pricing deadlines, fee structures, procedures for staying in balance and spread plans are just a few things that affect your bottom line.

Make time to look at all your policies and procedures. Avoid setting or keeping policies simply based on what the competition is doing or because it is “the way we’ve always done it.” Instead, focus on profitability for the elevator and avoiding unnecessary risk while being fair to your customers.

I learned this one fast. It’s easy to want the cheapest drying, Price Later fees or offer every contract imaginable in fear of missing out on a few bushels. During my first year at the elevator, I pored over every discount/fee schedule I could find and compared them with ours.

While I think familiarizing myself with others’ policies was beneficial, I ultimately realized I was putting far too much thought into policies that were rarely the deciding factor in a farmer’s selling decision. I shifted my focus to understanding that our policies were fair while protecting the elevator. I could defend that.

2. You can’t merchandise your way out of overpaying

Paying a little more to get your hands on grain,

figuring you must do a little better on spreads or make a better sale to make up for it, is a recipe for disappointment. It also makes it harder to pull the trigger on spread and selling decisions when you feel you are working from behind.

Local competition certainly has plenty of bearing on your buy basis, but with some effort, you can work toward better overall ownership.

Avoid the urge to lead the market. If your only point of difference is paying the most, then your competition will always know how to beat you. Instead, sell yourself and your services and work to shift focus away from spot cash value to targets and to sell ahead.

I also handled this one well. I was taught early on not to chase bushels I could not make money on. I touted offering “competitive pricing,” never being the highest price in the area. I don’t think my competition would have let me be anyway.

I got comfortable knowing I would not get every bushel that was only for sale to the highest bidder. Instead, I focused on buying grain ahead and using target contracts. Focusing on the desired price and delivery period helped shift the focus away from that extra nickel that another elevator might be paying today.

3. There is often more money to be lost on spreads than made

I will admit some recency bias on this one as the last couple of years have seen many elevators that held out for another penny or two of carry early on end up rolling short positions at steep inversions. I stand behind this idea, however, as a long-term merchandising principle.

If you need a spread, think realistically about how much opportunity you might miss versus how much downside risk there is if you don’t act. Avoid chasing one or two more cents that will have little impact on your bottom line. Instead, act by setting spreads and putting in open orders with dates to review your plan. Accept that you might miss out on some opportunity as you remove the risk of being forced to take a more unfavorable spread.

Second-guessing spreading decisions are commonplace for merchandisers, and I was no exception. I almost always had targets working to set spreads, but I made every classic mistake. I put in targets either overly optimistic or to try to get that last penny. I didn’t set dates to review and adjust my targets, causing me to get to harvest some years with little to nothing done. And when I did get beneficial spreads set, I never did enough bushels. Oh, if I had it all to do over again, I’m sure I would do so much better. Maybe.

4. Selling is everything (else)

Have a plan to get your grain sold. Start with cues from the market structure. A flat or inverted market is telling you to sell sooner, while a carry market will reward you for holding grain longer. Marry this info with your expected purchases and logistical capabilities to determine how much should be sold in each delivery period. Then be a seller.

I see more regret of sales not made or not selling enough than I see regret of sales made. Of course, plenty of sales are made only to see basis improve, but if a sale is profitable, it will never be wrong. The most successful merchandisers I work with stay in contact with their buyers, are always aggressively seeking selling opportunities, and are ready to pull the trigger.

I think I was average on this one. I did a good job staying in front of my buyers and had a good idea when I wanted to move grain, but at times I was a reluctant seller.

When I saw an opportunity, I would normally sell, but I tended to hold back bushels hoping to get a better sale on the rest. This would handcuff my successive selling if basis did not improve.

Looking back, I can see I caused myself some undue stress in this area. I was pretty good at identifying good sales and should have rewarded those opportunities more aggressively.

Don’t let yourself get too bogged down with daily tasks to give merchandising decisions their proper attention. Commit to having fair but profitable policies in place while maximizing your buying, spreading and selling opportunities. ■

Tracy Henkel is a grain merchandising specialist with White Commercial Corp. (WCC). He works with the team at WCC to help grain elevators across North America maximize their merchandising opportunities and strengthen their relationship with producers. Henkel resides in Fennimore, Wisconsin, with his wife and two children. He can be reached at [email protected] or found on Twitter @thenkelWCC.

Tracy Henkel

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