BIZTIPS - November 16, 2008
BIZ TIPS: Advanced Tools Drive Farmers Fortunes
BizTips November 16, 2008
Most talk about tools and farming involves heavy iron. Images of combines, seed drills, and diesel power come to mind. But there are different farming tools that aren’t cast or shaped from steel, have no wheels or tracks, and don’t burn fuel. Yet these tools move agricultural products from Oregon to countries all over the globe.
Jon Sperl, division manager for Pendleton Grain Growers, and Dan Steiner, grain merchandiser for PGG and Morrow County Grain Growers are experts at these tools. They start every day not in the cab of a Deere, but at sets of computer monitors. The tools they use are essential components of the worldwide commodities system. Steiner, Sperl, and their counterparts in the industry book nearly $5 billion in export revenue per year for Oregon farmers.
Their most basic tools are analysis and contracts. Steiner starts checking his standard data sources on the Internet and by phone at around 6:30 every morning. They tell him what global markets have been doing overnight across time zones, currencies, and national borders. He then compiles a daily report for famers and cooperatives who will use it to get the best price available now and in the foreseeable future for their commodities. Sometimes the best option is to act now, sometimes it is to wait. Sometimes that decision will be based on the weather in Australia, sometimes on the value of Korean currency. The most important information can be captured in two or three paragraphs based on screens and screens of raw data. The trick is knowing which data can be trusted.
Steiner says anybody can google a host of information sources and get data about commodity markets with acronyms like CBOT, MGEX, and KCBOT in the U.S. alone. One problem with this approach is that especially because of timing, some data will appear inaccurate or contradictory. One piece of information might be good for a month, another for 20 seconds.
Another problem is efficiency. Hundreds of individual producers and brokers can spend four hours each sifting through data, or they can get a start on trading decisions in three reliable paragraphs.
Analysis informs trading. Brokers access real-time information on commodity prices and volume worldwide by Internet and phone. Some prefer phone because they can gather additional information while they execute trades. Others start millions of dollars of commodities moving with the click of their Enter key.
Trading is based on contracts, the other basic tools of the business. The list of contracts is long, reflecting the variety and complexity of agreements available to increase the value of the sale to the producer. Hedge to Arrive, Basis, Minimum Price, Vertical Spread, Open Storage, and Float Pool are a few, each with a special advantage or protection for producers and buyers.