“So you do marketing for grain! That’s great, where do you advertise and promote it?”
It might surprise you how much I received this response when I would tell people I helped farmers market their grain.
It makes sense though.
When the term ‘marketing’ is used outside of the Ag industry, it is almost always used when discussing how to promote a product to buyers.
With a very commoditized crop like grain, however, farmers are price takers instead of price makers.
The corn or soybeans they are producing are not differentiated from the farmer next door. Unless, of course, they’re doing a non GMO, organic, etc. type crop.
Thus, marketing in the traditional sense of the word is typically used to promote and differentiate a product from competitors. That’s not useful in the ag industry with a commoditized product that does not have differentiating factors.
Thus, grain marketing refers to the process of selling a commoditized crop that a farmer produces.
Seems pretty straightforward and simple, right?
Well, there are actually several complexities. Below, I’ve listed a few of them.
A farmer doesn’t have to sell the crop at the same time that it’s harvested.
Rather, a farmer has the flexibility to lock in the price of the commodity before delivery, which is called ‘forward contracting.’ For instance, if I’m planning on planting 500 acres of corn this year and my average yield is 200 bushels per acre, I know that I’ll harvest approximately 100,000 bushels (500 acres * 200 bushels per acre) that I’ll be delivering at harvest.
Let’s say it’s June and I like the price that a grain buyer is posting for harvest delivered corn. In that case, I could choose to contract and lock in the price on a portion of my grain today, even though I won’t deliver it until harvest. Once I deliver it, I’ll be paid the price I established on the contract in June.
Farmers have different contract types they can use to sell their crop.
Many grain buyers offer several contract types that farmers can use. Instead of simply selling at the cash price that’s posted by a grain buyer, a farmer could use a contract type that just locks in their basis level or futures price, allowing them to set the other portion of the price later to establish their cash price. Or, some buyers also offer non traditional contract options that allow grain to be priced in different ways.
Grain can be stored and sold later.
Farmers have the ability to wait and sell grain after harvest if they have on farm storage. Or, some buyers offer commercial storage for a fee. I have some thoughts about using commercial storage…but it is still an option. Storage provides flexibility and potential opportunities for better prices after harvest.
There’s a futures market and a cash market.
This can get complex fast, so I’ll keep it simple. There’s the board price you see for commodities, which is the price you hear on the radio, see in the ‘futures‘ column on a grain buyer’s bid sheet, and is referred to when people say corn was ‘up’ or ‘down’ today.
The futures market is impacted by global supply and demand, global weather events in relevant commodity producing areas, economic factors, etc.
The futures market can be used to hedge, but farmers don’t physically deliver futures contracts.
The cash market refers to the bids that the grain buyers you deliver to post. For instance, the price the elevator down the road is paying for your grain on their bid sheet, is the price in the cash market.
The cash market is driven by local supply and demand, transportation costs, facility costs, etc. The cash market is where farmers sell and physically deliver their grain.
While this is a very high level overview of what grain marketing is, I’ll use future posts to help dive in and explain each of these items in more detail!
This post was written based on feedback from followers of Farm Girl Next Door, so if there’s something else you’re itching to know about grain marketing, shoot me over an email at nefarmgirlnextdoor@gmail.com or DM me on Instagram!