When contemplating the benefits of a pool for his operation, the last thing on the mind of Iowan Mark Tierney was where to locate the diving board and slide.
That's because this particular pool was intended to provide a marketing cushion for his grain, with no concern for chlorine.
Tierney, who farms about 2,000 acres of corn and soybeans with son Ben near Missouri Valley, IA, is part of a marketing pool program that earns profit from various combinations of futures and options through Cooperative Marketing Alliance (CoMark), in Memphis, TN.
With marketing opportunities for soybeans mostly limited to using the government loan and a $1-plus loan deficiency payment, Tierney was looking for other opportunities to benefit his operation.
“With prices in the $4-or-less range, there hasn't been much of an alternative for beans,” he says. “Alternatives haven't been that much better for corn, but there have at least been opportunities to generate premiums.”
Through the two corn pools, Tierney secured futures or options prices of $2.45-2.50/bu and $2.35-2.40/bu, respectively. Coupled with a major chunk of his corn booked for $2.30 at Cargill's ethanol plant in Blair, NE, he was set to receive a price likely higher than the harvest cash market.
CoMark was started in 1996 by Charlie Lowrance, an Arkansas farmer. He had enjoyed some marketing success through a cotton pool, and wanted a similar vehicle for corn, beans, wheat and rice.
Growers commit bushels or pounds to one of several pools within specific sign-up periods. For ‘01, there were more than 8 million total bushels committed to CoMark pools. It costs $10 to become a CoMark member, plus a 7¢/bu charge for corn committed to the co-op.
Each pool has at least two marketing consultant-advisors who make marketing decisions for an entire pool. “Advisers are responsible for monitoring the market at all times and recommending tailored risk management strategies,” says Lowrance, adding that growers are responsible for setting their own LDPs. “Grain is sold through CoMark, but delivered to a participant's choice of elevator. After delivery, the member receives an advance payment. The final payment is made after the pool closing date.”
Tierney first used the CoMark pools for part of his 2000 corn. He committed 10,000 bu and earned about 35¢ over the cash harvest price. For 2001, he had about 35,000 bu committed.
As of July 31, when December corn futures were trading at about $2.30, Tierney was looking at a premium of 17¢/bu for one pool, which had a sign-up period of October through November ‘00. The other pool was showing 7¢/bu over futures. Its sign-up date was December through January.
“We have specific sign-up dates because there are certain times of the year that farmers should be interested in marketing the next year's crop,” says Lowrance. “The premiums can change daily depending on how the futures price changes.”
The premiums seen by Tierney in late July were substantially higher than in late May — 25¢ and 19¢, respectively — when futures were in the $2.05-2.10 range.
In addition to the CoMark pools, Tierney had 40% of his 2001 corn contracted at $2.30 to the ethanol plant. “That was 70¢ above what forward contracts at the elevator would have offered us in early summer,” says Tierney. “We like to have the diversified marketing capabilities.”
And when the December ‘01 futures saw that minor rally in late July, he forward-contracted additional bushels of corn outside the pool with a local elevator and the ethanol facility at $2.24/bu.
Looking ahead, Tierney began taking steps at the end of July to make early sales for ‘02. “Ben and I signed up about 20,000 bu in the first 2002 pool,” he says, with anticipation of December ‘02 futures at $2.50/bu.
Chris Hurt, Purdue University extension economist, expects to see more marketing programs like the CoMark pool. “Some elevators are offering programs in which farmers commit grain, then use the average closing price of each day during a set time period,” he says. “There are also programs through grain companies in which growers can choose the analysts they want handling their marketing over a set period of time.”
He says pooling offers the potential advantage of having more volume to sell and a wider range of buyers. “We are seeing the producer mind-set changing,” he notes. “We see a whole lot of people realizing they have not done a very good job of marketing in the past. They want some assistance.”
Tierney likes having others handle the pressures of marketing. “Marketing has become the hardest part of farming,” he concludes. “There is not much of a margin for error. It is more and more difficult. That's why we decided to put it in the hands of professionals and see what they could do.”