Offers: How to Let Them Work

When it comes to keeping your farm’s balance sheet in the black, using offers with the help of your ADM representative is a proven way to achieve your grain marketing goals. Using offers is a disciplined, incremental way for moving grain and working toward a profit, rather than trying to top the market in a single, dramatic play.

In Episode 32  of In the Driver’s Seat, we speak with ADM Grain Origination Specialist Matt Kroes, who takes us through some of the basic fundamentals of offers. Kroes works in ADM’s southern Indiana/northern Kentucky region.

One of the main distinctions to understand, says Kroes, is the difference between firm and soft offers:

• A firm offer sets an exact price and a number of bushels. When the market reaches that price, the sale of those bushels takes place, with no further decisions necessary by the producer or the grain originator.
• A soft offer sets a price range without necessarily setting a number of bushels. When the market reaches that range, the ADM representative calls to gauge your interest—do you want to sell a certain number of bushels now? Do you want to wait? The soft offer is a trigger to this kind of conversation.

Firm offers have the advantage of capturing the transient market highs when they happen. With today’s volatile grain markets, these spikes can come in the middle of the night or while you’re busy doing the pre-emergent herbicide pass. Offers let you focus on your farm operation and give you a “set it and forget it” tool for marketing.

Kroes believes firm offers are the ones that most often get turned into sales. Soft offers act as a trigger for the ADM representative to contact the producer for a discussion. Sometimes, however, by the time they connect, market conditions may have changed, and emotions are running high. Emotions tend to be the enemy of a disciplined marketing approach.

When making offers, Kroes recommends thinking in crop portions rather than number of bushels to sell at one time. Selling in graduated increments of your projected harvest can help give you the margin you need while controlling risk. This method aims to cover the cost of production first, and then help the operation cross over into profitable territory. Consider selling, for instance, 20 percent of production at one price, another fifth at a dime higher, and so on. The goal set in a firm offer is much more likely to translate to a sale that contributes to profits. Don’t get caught waiting for a high that never seems high enough to pull the trigger.

Another advantage of offers is that you can make multiple offers with different ADM locations, each offer selling part of the crop to improve the likelihood of reaching your revenue goal.

There’s definitely a place for soft offers and the flexibility they create. If you want to sell at the higher end of anticipated markets, you can set a price range that prompts a call from your ADM representative. Say the range is $3.90 to $4 dollars for corn and the market reaches $3.93. A phone call from ADM gives the farmer the opportunity to gauge the market and possibly sell at $3.95, if it’s profitable—rather than losing a sale altogether if the market seems unlikely to go a nickel higher.

“I feel like the highest-price grain I’ve bought as an employee of ADM has been in the offers that I’ve booked,” said Kroes. “And I also think, oftentimes, it’s been the highest price the producer’s been able to sell, so it really does work well for both.”

Offers are not complex grain marketing tools, like futures and options (which have their place). They’re the straightforward “easy button.” Want to capture transient spikes in the markets? Work with your ADM representative on a strategy to maximize offers.