Co-op’s grain marketer strives to reduce producer risk exposure
The phone rings, and John Hansen answers it while
leafing through pages of grain market data on his desk.
More grain numbers flicker on his computer monitor.
Grain prices have been gyrating more than normal lately
because of heat and drought in
many states, creating what
Hansen calls “a weather scare.”
“Hello John, is this a good time
to sell?” asks the farmer on the
other end. Minutes later, it rings
again, but this time the farmer
calling is seeking advice on when
to buy grain for his hogs. No
sooner does that conversation
end than it rings again, and
Hansen is working out the details
for shipping dairy cattle feed from
his employer the Sioux Center
Farmers Cooperative Society all
the way to Alaska, a trip which
involves transport by hydro-train (putting railcars on
ships in Seattle).
Tucked away though he may be in a small, cluttered
office in northwest Iowa, Hansen sees the world of
grain through his computer.
“I watch the market all day, and I study it,” Hansen
says. “I not only track grain on a cash basis, but the
futures market as well. I try to put it all together and
present it in a systematic way that the producer can
understand.”
Yes, it is complicated, he admits. “But the secret is it
that doesn't have to be as complicated as some make it
out to be.” His modus operandi: study the market, follow
the trends and patterns, then make an informed decision.
So how is the grain market
to reduce producer risk exposure
looking, John?
“Depends,” he says with a
good-natured smile. “Are you
buying or selling? We do a lot of
both here, so it’s all a matter of
perspective.” A spike in corn
prices will bring joy to the heart of
a grain farmer who is selling, but
for a hog producer who is buying
feed, it naturally has the opposite
effect.
Most local grain co-ops do far
more selling than buying, but
Sioux Center does both in near equal
measure. The co-op also
does pooled marketing for members who so desire.
“It takes a unique grain merchandiser to wear both
hats like that, and John does a phenomenal job for us,”
says his boss, co-op Manager Ken Ehrp, who himself
earns plaudits from his directors for helping the co-op
thrive. “The producers trust John to give them good
advice, and you can't put a price tag on that.”
Hansen, a former grain merchandiser for ADM who
has been with the Sioux Center Co-op Society for 5
years, says, “People think I like to see grain markets
high. No, I don’t. But I don’t like to see them low either. I
just need to be able to trade. I am set up to trade and
make money by reducing my risk by hedging and trading
the basis to make money off of it.”
Risk Management 101
“I treat my job as a risk management service to our
producers,” says Hansen. “I strive to reduce their risk,
not increase it. When markets go up, like this,” he says,
gesturing toward his computer, “I work with my feed
customers to help them cover their costs in the most
economical way.”
Too many farmers don’t want to sell grain before
they harvest it, which is a mistake, he says. “You need
to sit down and do some homework in advance of harvest.
Figure out your 10-year production average, then
take your worst and best years and throw them out.
Come up with a good average. Then get a percentage
of your crop to market on a favorable trend. If it’s going
up, market a percentage of your crop on it; if the market
is going down, you need to market a higher percentage
before it drops even more. It’s an average-trend game
that you play.”
But it’s a sad fact of farming life that 80 percent of
producers sell their grain in the bottom half of the market,
Hansen says. “My objective is to get them to sell
more on the right side of the market.”
Grain markets, he says, can be a bit like car with an
engine in need of a tune-up. “They get of out of synch
they’re too high or too low for a few days and you
need to take advantage of that. When they are too high,
you need to get aggressive and sell into the market. When they are too low, you need to step up and get that
grain bought for your livestock.”
Marketing itself, Hansen says, is simple. “Gathering
the information to make the right decision, that’s the
hard part. It’s a lot like school work: you study a lot of
information, then get tested. My test scores come in
once a month, and I get graded on whether we lost or
made money.” In baseball terms, Hansen says it’s those
who hit for consistent average who do best, not the
guys who swing for the fence every time up. “Those
always looking for home runs tend to lose in this game.”
Sioux Center’s grain customers include the multinationals
Cargill, ADM, Bungee, and others and
regional grain buyers, such as Schoular Grain in Omaha
and Agri-Grain Marketing in Des Moines. “But my
biggest customers are local livestock people around
here; about 80 to 85 percent of our grain stays local.
That’s the flip of most areas, where they probably ship
out 85 percent of their grain.”
That ability to keep grain at home is Sioux County’s
primary value-added ag system, he says. “Those dollars
keeps turning over here.”
The biggest mistake grain farmers make? “Lack of
studying the market,” Hansen says without even a
pause. “I think all producers should take mandatory
classes in grain marketing. You must study to make a
better business decision, just like we have to do here.
Don’t spend all your time on your tractor study the
markets. Figure out a plan months ahead of harvest. The
mind set of I’m not going to sell until the banker tells me
to is a poor way of marketing.”
By Dan Campbell
