East Central South Dakota | There are some very intelligent people on here with a skill set for graphing and marketing grain, to the point I don't have much to offer, other than say thank you to those folks from time to time. Weather conversations and guessing market direction conversations don't excite me that much----again lack of talent on my part. Agricultural policy and trends that are looking 5-7 years out into the future are the discussions I most enjoy.
This past month there were some threads on the different pricing contracts that use a little smoke and mirror with options that grain companies are trying to sell and market---everybody is doing it now. They are not just making them available, they are aggressively selling and marketing their programs. Cargill Pro Pricing, Accumulator contracts, Grain Advantage contracts where you are giving "experts" your bushels to market, and the scariest of all the contracts--- the ones that double your delivery. I believe producers understand where the premium is being generated from (selling options) and the mechanisms of the trade range and kick outs-----but---only ONE poster, posted what my fears and the real dangers are of these contracts. The fear and danger of these contracts are the words "CAPTIVE SUPPLY", and that guy was Maizeing. This is how the "captive supply" and "contract feeding" started in the animal proteins do we want grains to follow that path ? ?
The discussions were fixated on the premiums and how much the multi-nationals are sticking in their pocket and how much they are sharing. The discussion/real reason should be about securing their "GRAIN HANDLE" needs and the margins you try to extract out of your "grain handle"---not the pennies on the contract trade. The motive and real money for the contract writers is in securing their grain handle in "CAPTIVE SUPPLY. "CAPTIVE SUPPLY" allows you to line up freight, schedule deliveries into processing, better manage people and margins----it also helps keep you out of having to raise up your daily bids at your processing because maybe you now have 25 of the 31 days of the month covered by captive supply grain contracts. It is all about "origination" in a competitive market that needs your grain.
We can borrow money, buy crop inputs and sell our grain to the same entity today if we so desire. How many years till a grain/production contract reads--- we will pay you $50,000 a year to raise a crop on your farm and sell us the grain-----we will supply everything but land, machinery and labor. The step to this from where we are is not that large of step. Now, throw five really bad years in a row in the discussion and a $50,000/year job might look good. If it means staying on the farm or working in town---some would do it. Murphy hog units are about the same business model--and we have lots of those today. What real difference is there between "contract growing" and "contract feeding" ? ? ? Do we have contract growers for seed already ? ?
Today we are in an over-supplied market------but, demand is still huge for our products. Ethanol added hundreds of new dump pits that compete for your grain ( some grain companies dislike the competition for grain, ethanol brought--thus the dislike for the product also ). Non-traditional, foreign owned multi-nationals are building export infrastructure and interior shuttles. Demand from a lot of NEW non-traditional dump pits still exists for our grain. Will we supply that demand with "captive supply" or will we make them come to the auction barn and give us a bid ? ? ? We lost our auction barns for livestock do you want to loose your local grain bid also ? ? What will happen to guys like Maizeing if we contract around him with majors---short term gain and long term loss when his bid is gone for good ? ? ?
Something to think about maybe ? ? ? Tell me my fears are unfounded and a reach that will never happen................maybe ? ?
Edited by white shadow 4/1/2016 11:21
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Need NAT opinions on our road to contract growing grain........
