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What the elevator makes
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PeteMN
Posted 3/22/2019 16:55 (#7395644 - in reply to #7395603)
Subject: RE: What the elevator makes


E.Central MN
"I assume when profits are there, they are big. When things go haywire, losses are huge."
Sure there are opportunities for elevators, but they are the same ones farmers can take advantage of by building bins and selling the carry, blending, etc. Most elevators have rules that limit the risks they can take so every bushel they buy is immediately hedged. Even the local elevator here will say that they won't buy more than a certain amount of grain when the futures markets are closed unless they already have a contract to fill for a processor. The key to a successful elevator is to use the facility multiple times in a year, ie, handle X times as many bushels as they have capacity for. On short crop years elevators have to scramble to earn profits because they don't handle as many bushels, the carry shrinks because the market wants the crop right away, farmers don't pay the elevator to store as many bushels, etc. Sometimes I wonder why a local soybean bid can be so low compared to a processor, its as though they are setting their basis off the river terminal bid instead. I'm probably just forgetting their charge for loading the truck. That also explains why the price goes up by the time it gets to a foreign buyer, everybody along the way adds their handling charges, weighing charges, inspecting charges, document fees, plus the actual shipping costs. Every once in a while somebody on NAT will post an example of actual tender offers w/shipping quotes on things like wheat to Egypt so that information isn't a secret, it must be out there somewhere in the public domain. I remember listening to a coop grain trader talk about how they had to learn how to do new things when they built a shuttle loader facility because they wanted to take advantage of markets outside the US. They partnered with a big multinational grain merchant that helped them learn the process and acted as a guarantee that any contract they entered into would be completed. Lot of risk involved in buying/selling a train load or a ship load of grain or anything for that matter.

Edited by PeteMN 3/22/2019 17:21
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