Grain marketing is an ancient trade, dating back to 9000 BCE. It began when farmers switched from growing a little bit of every grain to producing a lot of one type. So what is grain marketing in today’s world? It is now a fast-paced commodity market and a potentially lucrative career.
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Grain marketing in our modern society is how farmers sell what they grow, and it allows them to sell on a large scale. Customers may include everyone from ranchers who need feed for their livestock to ethanol factories.
Seven grains and grain derivatives trade on the Chicago Board of Trade (CBOT):
- Soybean Meal
- Soybean Oil
Soybean oil is a unique grain product because it is also essential to the biodiesel industry.
Grain marketing and trading happen extensively through futures contracts. These legal documents set an amount of grain and price per bushel for delivery at a future date. Hedge traders use these contracts to mitigate their risk in the market.
However, speculators have little interest in the actual commodity and are accepting risk in the hope of making significant financial gains. They buy and sell futures contracts without wanting the physical grain at play.
Grain markets follow supply and demand closely, with a somewhat predictable cycle for each type of grain. In addition, the weather creates a significant impact on these markets and adds a layer of unpredictability inherent in all trading.
What Is Grain Marketing Basis?
Local buyers, such as grain elevators or feed yards, set the current cash price for grain in that area’s market. But futures prices tend to be different from the cash prices. The difference between the two amounts is the basis. The futures price minus the current cash price gives the basis, and it can be negative or positive.
For example, let’s say a wheat producer is partway through the growing season and recognizes that the weather has been mild, calm, and favorable. She might worry that when it comes time to sell her crop, there will be a surplus that leads to a price drop.
If her current spot price is $3.50 per bushel, but the futures price is $3.75, she may want to hedge her risk by purchasing a futures contract. She would lock in the higher price, protecting her revenue in case prices start dropping by harvest and delivery time.
Who Are the Players in Grain Marketing?
Grain commodities are some of the most essential on the market. They directly feed people and livestock around the globe. As such a critical piece of the economy, grain markets have many different people involved.
Clearly, without grain producers, there is no grain market. Farmers use a combination of knowledge, experience, and technology to produce as much as they can.
Feed yards, mills, and ethanol production plants are the typical buyers for grain. Once the farmers harvest their crops, they generally store the grain in a grain elevator or on the farm until it’s time to sell.
Storage and Transportation
Grain elevators typically sit close to railways or highways to make transportation simpler. They may also be on ports for shipping. Farmers move their harvested crops to the elevators.
Operators weigh and test the grain before storing it. They check for debris, such as stalks, and examine the grain’s moisture levels, too. They want to avoid having grain that ages prematurely or molds, ruining the rest of the crop in storage.
When a farmer makes a sale or a contract comes due, trucks, trains, or ships move the grain to its destination.
How Do Grain Traders Succeed?
To stay competitive in the grain market, traders rely on access to real-time, accurate data. They also must remain alert to weather trends and events. In short, there are many moving pieces that demand their attention.
Traders in grain marketing also need to make decisions quickly to hedge their positions and make a profit. To do this, they must have a lot of data at their fingertips.
Some of the critical pieces that grain traders need are:
- Local Cash Prices
- Futures Prices
- Incoming Offers
- Weather Trends
- Overview of Market Position
Technology plays a significant and growing role in grain marketing. It’s possible to automate just about everything, from customizing weather forecasts to scheduling contracts. Today’s grain traders can streamline and optimize their work with the push of a button.
Traders utilize technology in many ways to stay profitable.
Many grain elevators now offer text messaging with cash price updates. This service makes it easier for those in the market to know what is happening in a particular location.
Farmers need accurate weather forecasts for their crops and historical data that helps them understand weather trends. These trends support the farmers as they decide when to sell.
Up-to-the-minute exchange data is the lifeblood for grain traders who want to hedge or speculate. New technology provides desktop and mobile applications that help support quick decision-making.
Continued training from experts in the field helps keep traders up-to-date in their business. Courses and classes on fundamentals, basis trading, and more are available online to support those in grain marketing.
Let Technology Help You
Anyone involved in the modern grain marketing supply chain relies on technology for their success. Without technology, people are left behind quickly.
The market moves and changes swiftly, and technology lets you stay in the loop. Whether you are a farmer or a trader, DTN offers a range of products to meet your needs. Connect with a DTN team member today to see how DTN can serve you.