If you were an outsider looking in at the business of grain marketing, you might scratch your head and wonder how it all evolved to where it’s at today.
Marketing your grain to a local buyer is not like any other form of commerce I can think of. As a prime example, let’s take a look at target prices or what is sometimes called target price contracts.
The risky business of target pricing
Traditionally, growers sell most of their grain to the local buyers they’ve done business with before. While that is changing, growers still think it’s easier to enter into a target price contract so they don’t have to continually monitor the markets and be prepared to react when it hits their target. Typically, negotiations for the target price contract require a signed contract before a finalized price is on the table or guaranteed. The grower is agreeing to sell their grain immediately when the market hits their target price.
One of the biggest caveats of this kind of contract is that it all but eliminates the grower’s ability to shop around for pricing and terms with other buyers. The grower also has their hands somewhat tied if there are drastic changes in market conditions that make them want to re-assess their decisions or make a quick move. And if they do shop around, it puts them at risk of overcommitting their grain.
What if another buyer has a better offer but they’ve signed a target price contract with someone else? The grower generally needs to provide 24-hour notice to the dealer before they’re released from the contract. Then, they start again with another buyer.
Imagine buying a new vehicle this way
My guess is, you wouldn’t buy a new truck in the same way you sell your grain with a target price contract. But let’s put the story together anyhow.
You need a new truck.
You visit the local dealer who shares with you some insight into pricing trends for the truck and offers some speculation into how the pricing of the truck might change.
You just want to know the price for the truck but the dealer requires you sign a contract before he agrees to a price with you.
You can go to the dealer in the next town to see how their pricing compares, but not without first requesting a release from the first dealer or you just might be stuck buying two.
How online grain contracting helps level the playing field
Much like the new vehicle analogy, ask yourself when you last purchased a major item without checking pricing online. How we shop and make purchases today is vastly different than how we did it even 5 years ago. Everything from pricing, to reviews, shipping options, and product specifications are at our fingertips. For most industries, suppliers and retailers have jumped into ecommerce with both feet to sell their goods and services on their own websites or on giant platforms like Amazon or eBay.
But where is agriculture on this online path? Well, we’re lagging behind but taking big steps forward.
Today, growers have the opportunity to put themselves in the shoes of other industry suppliers and manufacturers and market their grain in a broader and more transparent way. Much like Fitbit is selling their latest smartwatch on Amazon, growers can now use an online commodity exchange network to sell their grain. Growers gain the freedom to negotiate price and contract terms before they agree to a binding contract and they get exposure to a much broader array of potential buyers than those that they’ve always done business with. This means they have the power to sell on a “best-offer” basis which is highly specific to the price you want, the grain quality and quantity, contract specifics, and delivery details.
Not as big a leap as you might think
Perhaps the comparison of a grower selling his or her grain to a multinational organization like Fitbit isn’t a fair one. Fitbit is a huge corporation. While todays farming operations are getting bigger and bigger, the world of online grain marketing might seem out of reach for some. That’s simply not the case though. In fact, as the number of buyers on an online commodity exchange network grows, the more demand there is for different volumes, qualities, and contract arrangements on the platform. Niche production just might find it’s perfect home.
Selling on an online commodity exchange network also doesn’t require a full team of sales and marketing experts. Because there is transparency to the pricing (i.e. you can see all the bids and asks so there are no mysteries to pricing and terms available) you’re better equipped to make an educated decision about the contract that makes the most sense for your operation. You really are just shopping online for a grain contract with multiple buyers making you offers. And the good news is, if the best offer comes from a local buyer, you get to work with someone you already know – just in a new, fairer, and more transparent way.
Have questions about how an online commodity exchange network like CXN360 can work for you? Get in touch and request a demo of the platform.