Cargill program offers selling help With 6,500 acres of soybeans - 1,000 each of corn and cotton - and 2,500 of wheat and other crops, Ted Medlin figures he has enough on his hands just producing the best yields and quality. Marketing, with all its emotions, can be accomplished as good or better by those monitoring market trends more closely, he says.
Medlin, who farms Mississippi Delta land at New Madrid, MO, depends on a new program offered by Cargill, Inc. He's among numerous growers participating in the Cargill AgHorizons ProPricing marketing program. They count on Cargill marketing experts and/or outside marketing gurus to handle their grain pricing.
In all, some 200 grain handling facilities within 37 Cargill service centers are offering ProPricing. Medlin, who markets through a Sikeston, MO, Cargill facility, feels that pros are superior to him at making marketing moves at the right time.
"Marketing your grain is something very personal," says Medlin. "But there comes a time when everyone has to seek specialization."
ProPricing is an expansion of a company pilot program called AgHorizons Average Plus (or A+). It was introduced for corn marketing in the Midwest last year. With A+, growers received a minimum price based on the average closing price of December 2000 corn futures between Feb. 1 and June 30 last year. In addition, they received two-thirds of any amount by which Cargill hedging activities exceeded that average price.
The program's final corn price in the 2000 crop year beat the market average by 6/bu. Farmers received $2.53 as a final futures price. This final price exceeded the price at delivery by over 50/bu.
For Medlin, the return was even better. He netted $2.72/bu.
"We generated an additional 28/bu over the loan rate from the AgHorizons marketing program," he says. "With a cash harvest price of $1.64 and a 40 LDP, that gave us a net 68 over the $2.04 loan, or a $2.72 net price."
Medlin accomplished his goal to be in the top third of the price range. But he had more to do with A+ than just his participation. He headed a drive to have Cargill establish it.
"We wanted to take advantage of the company's superior knowledge and marketing skills," says Medlin, who has marketed grain through Cargill for nearly 40 years.
ProPricing expands that program into the company's national network of service centers. Participants may contract up to 50% of their anticipated production of corn, soybean and wheat bushels based on five ProPricing hedging choices.
AgHorizons manages three hedging strategies. It utilizes two non-Cargill marketing professionals to manage the other two. Hedging activities of these respective groups will decide the final contract price. Here are the hedging choices:
- AgHorizons Pros uses Cargill's trading experience to formulate futures and options strategies. The goal is to achieve a price in the top third of the market trading range.
- AgHorizons Average Plus (A+) continues the previous A+ contract, guaranteeing a minimum of the average futures price during a set period, plus two-thirds of any amount by which Cargill AgHorizons hedging activities exceed that average.
- AgHorizons Max Average offers a relatively low-risk hedging choice. Farmers receive the average futures price during a set period, typically the highest seasonal period. Participants also agree to a maximum futures price, creating a price cap.
- Richard Brock of Brock Associates, Milwaukee, WI, is managing a fourth choice. Brock uses futures and options strategies with the goal of reaching a price in the top third of the futures trading range.
- Alan Kluis of NorthStar Commodity, Minneapolis, manages the fifth choice. Kluis uses a slightly more conservative hedging strategy while also trying to reach the upper third of the trading range.
"Each hedging choice offers a guaranteed minimum price, which helps to reduce the risks that producers face in marketing grain," says Dennis Inman, Cargill customer solutions leader.
For corn marketing, AgHorizons Pros, Brock and Kluis all come with a 5/bu service charge, plus there's an additional premium if the average price achieved falls within the top third of the trading range. The A+ contract carries a 3 service charge, but there's no service charge or premium with the Max Average program.
For soybeans, there's a 7/bu service charge for Brock, Kluis and AgHorizons Pros, 5/bu for A+ but none for Max Average. November 2001 soybean futures are used as the base.
In every case, basis - the difference between the cash price and futures price - must be set on or before delivery (local policies may vary).
Medlin expanded his use of ProPricing for 2001. "There are more opportunities to access additional marketing expertise," he says. "We have elected to adopt a model to put one-third of our corn and soybeans in the A+ program, one-third with Brock and one-third with NorthStar."
The sign-up deadline for the 2001 crop year was Dec. 27, 2000. The types of programs selected by ProPricing growers varied nationwide. In Hart, TX, for example, most growers signed up for the A+ and AgHorizons Pros plans, says Jarrel Sewell, group manager for Hart and Plainview, TX, service centers.
"About 60% went with A+," says Sewell. "About 5% used Brock in their programs. Some used four separate ProPricing areas to spread their risk even more."
In Sewell's area, growers depend on irrigation for corn and beans. With skyrocketing prices for natural gas used to run irrigation engines, sign-ups in the ProPricing program were likely lower than would be expected.
"Growers are unsure about energy prices and how they will impact their corn production," he says. "Many won't know how much corn they will grow until right up to planting time.
"But it should benefit those who signed up. It's good for the farmer and good for Cargill."
Kim Anderson, extension economist at Oklahoma State University, sees more usage of marketing services like ProPricing.
"In an efficient crop like corn or soybeans, what makes tomorrow's price different from today's is new information," points out Anderson. "So to make a profit from marketing, you get the information before others, then analyze the data better than the market as a whole.
"And who normally gets that information before others? Large grain companies (like Cargill). If a program like this or another pool allows a grower to take advantage of their ability to get information and analyze it, then why not use that type of program?"
Medlin says reaching that top third of the market should be the goal of any producer.
"I'd be comfortable being in that group every year," he says. "Time needed for marketing is a luxury we often don't have. It's nice to know there's a program like ProPricing we can trust to handle it for us."
For more information on the ProPricing program, visit the AgHorizons Web site (cargill.com/aghorizons).