Need Cash at Harvest? Don’t Surrender Upside
With cash rents, repair bills, and other expenses coming due, you may be anxious to sell some of your harvest grain. But a cash-only sale has a drawback: you walk away from potential upside in the market. And storing that grain has its own risks.
Now there are two alternatives. Here to walk through two ADM contracts that work well at harvest is Dave Rosenmeyer, Integration Manager in the north central Midwest. You can listen to the full episode here:
What extra challenges do farmers have this year with harvest coming?
Rosenmeyer: If yields do happen to come in like projected, having extra bushels to deliver or find storage for is always a positive thing. But the challenge is, how do I market those bushels, and what are some things I should be thinking about?
So what choices do I have with harvest bushels?
Rosenmeyer: In the past we’ve had two main staples. 1) Bring it in and sell it for cash. That still works, but the problem is we limit our pricing opportunities if the market should happen to rally after harvest. 2) Put it in storage, but that leaves you exposed to all the price movements, up and down. We’re introducing a couple new options that will bring farmers a little different way to think about marketing their harvest grain, and the opportunity to put some price protection in place.
What are my alternatives to cash sales, if I need to pay bills?
Rosenmeyer: The first one is Price Point. It allows the customer to establish a cash price, then invest in upside opportunity in case the market would want to rally—and then sit back and feel comfortable that they’ll receive no less than their guaranteed minimum price. Our second choice is ADM Advantage Expert. It’s a way of enrolling bushels with one of our three ADM experts and having them help establish a contract price, leveraging their industry knowledge in some pretty turbulent times.
Let’s take Price Point. How does it work on a sale of 10,000 bushels?
Rosenmeyer: Once you’ve delivered the 10,000 bushels to ADM, we can show you several different price points and pricing periods to choose from that line up with your expectations. Then you’re enrolled. No matter what happens, you’re going to get no lower than that guaranteed minimum, less the service fee for the Price Point. If the market averages higher than your price point, we’re going to take that difference and add it back to your contract to give you some good value.
“With Price Point, you have a guarantee and yet you preserve the opportunity
for the market to go higher.”
What portion of that contract can I get as a cash advance?
Rosenmeyer: Since Price Point has a guaranteed minimum, we’re able to advance that entire guaranteed minimum, less the service fee.
How does ADM Advantage Expert work?
Rosenmeyer: Price Point is an automated contract working off of averages. With ADM Advantage Expert, you leverage the knowledge of industry experts to set a price on your contract over a period of time. They’re going to be looking at the markets, understanding what’s going on, and reacting to the changes and events to help maximize that pricing opportunity. (For a cash advance on this contract, talk to your local ADM representative.)
Overall, how are Price Point and ADM Advantage Expert better suited to market realities this harvest?
Rosenmeyer: With Price Point, you have a guarantee along with some opportunity to play in this market. That guarantee is critical because we really don’t know where the market’s going, and yet you preserve the opportunity for it to go higher. On ADM Advantage Expert, to have the power of choosing experts at ADM, Crow Trading, or Farm Direction, it gives you three really good choices—or a mixture of all three—to help you set the price for those bushels.
“In ADM Advantage Expert, a grain marketing expert establishes a price, leveraging their industry knowledge in some pretty turbulent times.”
What are the sign-up deadlines for these contracts?
Rosenmeyer: Price Point is an ongoing sign-up, since we’re able to customize the levels and dates. We can help a customer choose what they like. For ADM Advantage Expert, the sign-up period is now through November 23, because that contract will start pricing on December 3. So we need to get bushels in the books and ready to go.
Can I track the performance of these contracts as the market moves?
Rosenmeyer: Yes; with Price Point, you’ll work with your local ADM representative and track where prices are each day and what your values are looking like. In ADM Advantage Expert, you’ll receive a weekly communication of where the contract’s at, how many bushels have been marketed, and what’s the current market value in that offering. It really gives you a nice snapshot of where the products are. You can subscribe to these weekly emails and see dynamic charts of current pricing progress as well as historical track records.
Are these adjustable contracts? Can I price out if I don’t like the direction they’re headed?
Rosenmeyer: Once you’ve made the decision to enter these contracts, letting them work and do the job they were designed to do is a great thing. It allows you to focus on the bushels you haven’t done anything with yet. But if market conditions change, or your bias in the market changes, we do have some early price out features.
With the market pretty discouraging, why should I try to stay in it?
Rosenmeyer: We need to be tuned to earning those smaller moves in the market, because we’ve seen prices fall from looking like favorable levels to some that are going to challenge the profitability of some of our producers, depending on yields. Even dimes and quarters can be critical to the bottom line.
Any last guidance on facing a big crop in a low market?
Rosenmeyer: When the market’s bad, it’s easy to look away and ignore it. But just keep focused on what your plan is. And if you don’t have a plan, establish what you want to do, because it’s always easier to adjust a plan than trying to create one when conditions are changing around you. You don’t have to go it alone. Talk to your ADM representative, and ask them what type of things are out there. Leverage some people you trust.
Want to enroll in Price Point or ADM Advantage Expert? Contact your local ADM representative.
Past performance is not indicative of future results.
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