November 30, 2020

Ask the Grain Expert: Move Beyond Front-Door Marketing

Karl Setzer

By Karl Setzer

While you’ve heard a million times that today’s farmers compete in a global market, it can be hard to see the big picture beyond the farm gate.

To avoid getting caught up in front-door marketing, consider these factors:

1. Grain production is on the rise globally.

If we lose 1 million acres of corn in our region due to inclement weather, it’s a local disaster. If you use a 155-bushel-per-acre average, that’s 155 million bushels of corn lost, but it’s a drop in the bucket on the global scale. This loss won’t drive the futures market when there are an estimated 948 million metric

tons of corn available globally, up 18 mmt from a year ago. This increase is largely from increased production in the Black Sea Region and China, which boosted its corn production 30% in yield alone in the last 10 years.

2. Land values challenge conventional wisdom.

Been to a land auction lately? The high prices are often followed by comments like, “Well, they aren’t making any more land.” Guess what? They are making land. It’s called Brazil. In northern Brazil, there’s an area that can be converted into 450 million acres of land, with no deforestation required.

3. Time is money.

Fortunately, the United States still has many advantages in the global market, especially with our shipping capabilities in the Pacific Northwest. We can ship grain to China roughly two days faster than Brazil can. That may not sound like a lot, but freight, interest, and insurance on the grain can add up to half a million dollars a day. Another benefit we offer foreign buyers is our consistent supply. Since Brazil has limited infrastructure, soybeans often need to be trucked 1,500 miles over gravel roads to the ports. This would be like trucking soybeans from Minneapolis to the ports at New Orleans. In addition, South America can’t load shipping vessels in the rain, because they don’t have covered ports. While these countries have infrastructure challenges, realize that these competitors only have one way to go, and that’s up.

4. The global markets drive the futures market.

In recent years, we’ve seen increased competition in global grain marketing, especially from South America, Ukraine, Russia, and Australia. The global market explains how a tighter stocks-to-use ratio can still lead to a depressed soybean market, for example. The United States has become a gap filler, rather than a driver, in the world soybean market. Grain marketing made simple. While the futures market and the global market are important, be careful not to get hung up on futures (or basis, for that matter). Remember that cash prices allow you to pay the bills.

Also, remember that you don’t have to go it alone with grain marketing. We can tailor strategies that give you peace of mind in today’s volatile, global markets. Contact your nearest MaxYield Cooperative location for more details.

Editor’s note: Grain Solutions Team Leader Karl Setzer will offer his insights into different grain marketing topics in each issue of My Solutions. If you have a topic you’d like Karl to address in future issues, email us at cmeyer@maxyieldcooperative.com or ksetzer@maxyieldcooperative.com.

 

 

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