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Converting corn into cash

Converting corn into cash

As the 2009 harvest draws to a close, as combines get packed away for the next season, the question for a number of farmers is 'what to do with the grain in the barn?' Converting corn into cash has long been a an art mastered by many whose farming skills may not be all that spectacular, and the huge swings in grain prices since 2007 have underlined that selling is as important as cultivation.

Using the agronomist has become a normal part of cereal farm management, and something which very many would now not do without. The cost of the advice is more than repaid by additional performance and peace of mind. So it's someways surprising to see how relatively few corn farmers use marketing or buying advisors. Doing it alone can mean ending up with high risk decisions, often without even realising it.

Getting a better average
Grain contracts have become increasingly sophisticated. It's not too hard to imagine they are largely designed to give the trader more grain for less money. But when the market is looked at from the buyer's side of the fence, it's clear that sourcing regular supplies for users as diverse as on-farm mill mix units to high tech food applications is of major importance. So contracts can help both sides. The recent price switch-back shows the potential up and downsides to the business, and most farmers know of people who have experienced both. When prices fall there's no knowing where the bottom will be, and for how long things will stay there. When they're maxing the same questions apply - do I take profits or wait for even better returns?

While some farmers find grain marketing something of a worrying chore, others are fascinated in the process and will keep a very close eye on the market, getting comments and reports from the US and other major international trading centres. This attention can pay off but, in there's no certainty the hours spent on the computer will be rewarding.

Min-Max Contracts provide the farmer with a price window... chopping off the spikes on the price curve and ensuring guaranteed premiums for quality such as malting barley. There's the opportunity of working out crop returns with a fair degree of accuracy if the farmer has a good knowledge of his production costs.

Pool pricing is not unlike investing in a unit trust - you get a good spread of risk but the fund's performance is highly influenced by the quality and success of the managers. The 'investing' farmer often has no guarantees, but puts faith in the skill of those whose full time job is marketing on behalf of their clients.

Farm to farm sales
A significant amount of grain moves directly from one farm to another, from cereal grower to livestock farm. Much of this trade is done at the spot price on the day, both sides hoping to do the trade when the price is advantageous. While the frisson of excitement can be enjoyed by both sides, particularly if they have a good financial cushion to take the shocks out of adverse market conditions, there are ways which their trading can be smoothed out.

1. by trading on a basic average of a selected reported price over the season, with adjustments as the price fluctuates
2. trading fixed - the price and delivery quantities agreed in advance

There's no way that either buyer or seller can become totally insulated from market price fluctuations, but the efforts made to reduce them will often be repaid. Planning, be it growing decisions or ration formulations, is made easier. There's less time and effort spent on trying to beat the market on a weekly basis, providing more time for farming.

Contracts terms: look out for quality terms in grain contracts, which can vary greatly. Some write in crippling defaults, provide for rejections and these can turn a good harvest into a nightmare.