By Rodney Connor, Head of Offering Product Strategy, Marketplace
Although cash grain bids show a certain price today, the farmer won’t get that price when it’s all said and done. That’s because the price doesn’t include all of the costs incurred along the way, and this misdirection often leads to confusion and poor marketing decisions. Here are the four steps for getting the best cash grain bid:
1. Match your delivery window. Most often, a standard market pays the farmer more if they are willing to store grain, compared to immediately flipping grain for cash. So, when you are comparing and ranking different bids, make sure the delivery windows match; if one cash bid has a later window, you should be making more money on that contract.
2. Assess the freight costs. Make sure the freight cost is subtracted from each bid to determine the freight-on-board value (also known as the farm gate price). I often talk about how freight is the forgotten – and most impactful – value in the grain marketing deal, which means you should never disregard it. Here’s an example:
- Jen has a cash grain bid for $8.75 and it costs 25 cents to haul, resulting in a freight-on-board value of $8.50.
- Jason has an $8.90 cash price and it costs 50 cents to haul, resulting in a freight-on-board value of $8.40.
- This means that even though Jason has a higher grain bid price than Jen, the net cost of transportation allowed Jen to have the highest freight-on-board value and receive the better margin.
3. Take stock of unique costs. Before selecting the bid, you should consider any other costs uniquely associated with each buyer. These costs could be related to payment timing, discount schedules, quality of grades, distance from your operation – any financial or logistic element that makes it more or less easy to do business.
A subjective way to evaluate cash grain bids from different buyers is to assign a value of doing business with that facility in cents per bushel. This can be a positive value for a company that’s a pleasure to do business with, or a negative value for a buyer that has a tougher discount schedule. This kind of exercise may be hard or unfamiliar, but begins to quantify the emotions and stress wrapped up in grain marketing.
4. Select and confirm. In the end, the buyer with the highest net price is most likely the best place to sell your grain.
Most farmers can estimate these costs for one to two locations, but getting the math done for every buyer in the area is an intimidating task. Not to mention the lack of accessible, powerful tools to see all of the available cash grain bids outside of a typical draw area. This is why we started building a new Marketplace – a simple and efficient way to expand your buyer network, use basic and advanced pricing tools, and set a disciplined plan.
To help in finding the best cash grain bid, Marketplace calculates the freight-on-board value for all bids within a 200 mile radius of your farm, ranks them in order of highest value, and updates them on a daily basis. Along with these key steps, you can hone in on the math while reducing the emotion associated with Use them – in combination with these four steps – to make the most for the grain you’ve just raised.