When VeraSun Energy Corporation filed Chapter 11 late last year, Mike Schlarmann was left scrambling to replace his corn buyer. He had recently contracted to sell 20,000 bu. of corn to VeraSun's new ethanol plant in Dyersville, IA, just a few miles from his farm in Worthington. But operations at the plant were halted before he delivered the corn.
Schlarmann, who was scaling back on his livestock enterprise and as a result had more corn to market, considered selling to a local elevator or a large processor in Dubuque where he'd sold corn in the past. However, that would mean calling each buyer with the hope of hitting their highest offers and verbally juggling among buyers.
Schlarmann wanted to streamline his gathering of local bids when he heard about Pioneer's Market-Point Resource (MP) Web site. Launched as a pilot in 2008, the site matches corn sellers with corn buyers and electronically monitors the difference between “ask” and “bid” prices for each corn offer. The technology was developed by Farms Technology, Overland Park, KS.
Upon subscribing to MP, growers learn of participating buyers in their marketing area and send a “new seller request” to the buyers they choose. “Both parties have to agree to do business with each other,” says Joe Foresman, Pioneer senior marketing manager.
APPROXIMATELY 10,000 CORN growers and 350 buying locations in Iowa and Nebraska are enrolled in MP. Pioneer plans to expand the service to other states next year and eventually hopes to add soybean trading. There is a $500 subscription fee, but Pioneer customers routinely get it free through their Pioneer sales representatives, according to Foresman.
Growers can post formal offers to as many buyers on their list as they wish. The grower determines the per-bushel target price based on profit goals and the Web site includes a matrix for the farmer to determine his freight charge from the farm's location to each buyer. If the buyer is handling the freight, there is a pricing option for that, too.
Corn must be sold in 5,000-bu. increments. Each offer indicates crop year and corn grade and stipulates a two-week delivery window. Sellers can set offers to expire in one to 30 days or when the delivery date expires.
Buyers can make bids on offers they choose. They can update the basis on their MP bid sheets daily which automatically updates any bids with their seller. Offers and bids can only be viewed by the two parties directly involved in the transaction.
The system monitors market movements throughout daily futures trading periods, including overnight. Sales are triggered whenever a bid matches the grower's ask price.
MP gives both parties greater access to daily price highs and lows, says Foresman. “We've got a futures market open 17 hours a day and it's not uncommon to see 25¢ swings from low to high in one day,” says Foresman. “There is so much more volatility in today's market, and this allows both parties to benefit from that.”
BUYERS OR SELLERS can also motivate deals by changing their asking price or narrowing their basis. The latter happened when Buffalo Center, IA, grower Joe Larson sold 50,000 bu. through MP to a local co-op last spring. Larson operates in a competitive grain market where four end users and three co-ops compete for his grain.
“Normally, that particular co-op is 5-10¢ lower than our end users around here, but he pushed the basis a little bit to get it bought at that time,” explains Larson, who farms with his brother John and uncle Gary Friesdenborg. Since last spring, Larson has sold about 150,000 bu. through MP.
Larson says MP eliminates the worry about selling more grain than you intended to at one time. “You put offers out to a bunch of different co-ops at one time,” he says. “If one accepts it, the others don't get the chance. Whereas, if you put a bid out to each co-op verbally and they all decided to accept it at the same time, you get all those bushels sold when you didn't want to.”
In addition, buyers can also submit “active private bids” to attract extra supplies when they need them, explains Foresman. “Let's say I'm a buyer at an elevator and I need 250,000 bu. delivered early next week,” he explains. “In a matter of five keystrokes, most buyers could hit 1,000 farmers within a 50-mile radius of their delivery location in a few seconds. The farmers get a text message on their cell phone to let them know a buyer is looking for corn for a certain delivery period and price. The advantage for the buyer is replacing 1,000 phone calls.”
Schlarmann made his first MP trade last January when he contracted to sell 5,000 bu. to Penford Products in Cedar Rapids. Schlarmann — who farms independently but markets his grain with his father Ray; three brothers, Dale, Ken and Dave; and brother-in-law Mel Heims — had set a target selling price of $4/bu. for his 2008 crop.
“Trucking to get it down there was 23¢ so we asked $4.30 and netted 7¢ more than our $4 target,” Schlarmann says.
Before using MP, Schlarmann had never heard of Penford. “I've learned there are more people out there buying corn than your local elevator,” he says.
WHEN A BUYER offers a bid equal to the seller's asking price, the seller gets an e-mail alert with notification the transaction has traded. The buyer then sends a paper copy of the contract to the seller. In enrolling in MP, both parties agree to follow standard grain trade rules set by the National Grain and Feed Association.
“It is no different than any other grain transaction,” says Foresman.
The Schlarmanns have sold approximately 110,000 bu. through MarketPoint in the past year, averaging $4.05/bu. That's about 30¢ more than they'd have earned selling corn at local cash markets,according to Schlarmann. Some months they netted $1 or moreover the cash market. The premiums more than cover added trucking costs, Schlarmann says.
Pioneer farmers who grow specialty hybrids that produce high total fermentable or high available energy corn can differentiate their offerings on MP from commodity corn if they desire. In addition, MP users who attend special workshops can add a special “GQ” quality grain designation to their offers.
Although Schlarmann says he's not a sophisticated computer user, learning to make trades on MP wasn't difficult. “Once I understood how it works, I could click-click-click and be done,” he says. He estimates he spends about a half on hour on the site per day in the early part of the year when he's selling the most volume.
Ultimately, MP offers a tool for growers like Larson and Schlarmann to name their price for the products they produce. “I get what I want and I feel I have more control over what I'm doing,” Schlarmann says.