It sounds simple. The company slogan is “Lock up and Lock in.” And for farmers who do business with the Mid Kansas Cooperative Association (MKC) in Moundridge, KS, it's the first chance to lock in net dollars of profit per acre, long before they ever plant the crop.
“You haven't locked in profit unless you have both crop input costs and grain sales locked in,” says Bruce Vernon, sales and marketing manager for MKC. “With today's market volatility — particularly on the input side — if you only lock in a sales price, you could be locking in a loss.”
MKC's market area covers 13,000 square miles and the co-op can offer the program, called ACRE, because it's large enough to sell all the inputs and crop management services for wheat, corn and soybeans. And, it's the largest partner in Team Marketing Alliance, a marketing company comprised of four Kansas co-ops that's also headquartered in Moundridge.
Agronomists and marketers from the two companies joined efforts to produce proprietary software that will calculate net profit per acre for customers, based on input-buying and crop-selling decisions made through the co-op's multiple services. “We had farmers test and review the software before we offered the program publicly,” Vernon says.
WHILE IT'S A GOOD deal for growers, Vernon is clear about the co-op's purpose in providing the service. “We want to put everything on an acre, and take it all off,” he says. That's not the same as wanting every acre that a farmer grows, he points out. In fact, during its initial year (2008) Vernon encourages farmers to try the program on only part of their production.
“We don't want it to be intimidating. We don't have to have all a grower's acres in participation,” he says. “The minimum we can accept is a field-size unit. It isn't practical for us to do only part of a field.”
MKC offers seven services for growers to consider as part of their ACRE plan: fertility, seed, crop production products, grain sales, fuel, plant health and application services. Also, the program is open to all growers, says Vernon, not just MKC members.
MKC offers production-loan financing as part of the ACRE package, and the more co-op services you use, the lower the interest rate you receive. “To participate in the ACRE program, growers are required to use MKC for at least their crop fertility and their grain sales,” Vernon says. “That's where we have the biggest margin.”
According to the MKC brochure, farmers could get an interest rate of 4.75% if they signed up for all seven services, 5.25% for six services and 5.75% for five services. The highest rate paid for using the minimum services is 6.25%. Those figures are the same regardless of what crop you grow under the ACRE program.
“Growers aren't obligated to use co-op financing,” he says. “But if they can pay cash for the services, they might make a higher rate of return by leaving their money invested in the financial market.”
Vernon points out that there's no obligation to use services you don't need; you can use independent crop consultants to help with your input decisions. But, if you have an ACRE contract, it works in your favor to spend your dollars with MKC.
THE ACRE PROGRAM'S flexibility may be one of its best selling points, according to Vernon. “You don't have to make all your decisions on the same day. You have the option to decide when you want to price inputs and grain sales,” he says.
“The opportunity to lock in grain prices has always been there. This program gives you the opportunity to lock in price for your most expensive inputs — fertilizer and fuel — as well,” says Vernon. “But, you choose how you want to market your grain and what day you believe is the right one to price inputs. We do a look back upon grain settlement to determine the final program benefits.”
Wheat growers had to make their decision to sign up by Dec. 31, 2007, and signed up 40,000 acres for 2008. Corn and soybean growers have until March 31, 2008, to make their decision. By early January, growers had signed up 1,500 acres of each crop.
MKC members Floyd and Darcy Nickel intend to book all their wheat, milo, corn and soybean production in the ACRE program in 2008. The father and son farming duo sees it as a win-win proposition.
“For us it's kind of a no-brainer. We already do all our business through MKC,” says Floyd, the father. “From a farmer perspective, it's a reward for commitment to MKC. If it entices other farmers to buy more inputs from the co-op, that's good for business and good for co-op members.”