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Online Marketing Tool Tracks Returns
We all know that any of last year's grain still in bins, if it wasn't hedged or sold, has been losing value for much of the winter. Troubles in Ukraine sparked a spring rally in futures, but the value of the unplanted 2014 crop is uncertain. Yet, farmers have plenty of tools to manage some of that risk – crop insurance, options, futures, and cash sales.
Until recently, it wasn't easy to know the effect of all those decisions on your bottom line, however. Now you can, at no cost, with an on-line tool called AgYield. A screen shot of the tool's dashboard appears on this page.
Four windows in the dashboard take you to different ways to view your revenue.
The account summary estimates the value of your unsold grain and all of your approaches to marketing it. Futures prices are adjusted each day with the previous day's close, and unsold bushels change with the basis pulled from a 150-mile radius. (For a $20 monthly fee, you can have quotes from buyers of your choice fed into the program.) You can set up the accounts by different entities and crops in order to drill down further into profitability.
A hedges snapshot shows how you've allocated different marketing strategies. An estimated return chart is a historical look at returns. And the forecast matrix is the heart of the program. That's where you can test different marketing strategies combined with crop insurance. Or you can select just one approach to see how it performs at different levels of price and yield – which you can also adjust.
"We've been putting everything in there," says Scott Friestead, who raises corn and soybeans with his father in Kendall County, Illinois. "If we sell grain, it goes in there. If we sell futures, it goes in there. We've done some options trading. When you sell options, it shows you where the risk will be in a year when the market takes off, like in 2012."
Friestead and his father have been using options for years but selling them only in a limited way because of the margin call risk you face once those options are in the money. They've been able to be more aggressive by using the AgYield, which was introduced in 2012. Now they can see in the matrix how an options sales strategy will make or lose money at different price levels and yields.
"Without this, we couldn't be doing the marketing we're doing because it takes out the unknown," Friestead says.
AgYield isn't the only online tool for analyzing your marketing performance. Brokerage firms and crop insurance agents have developed or use other proprietary tools. Friestead has tried some others, but he finds AgYield more flexible.
If AgYield is free, is there a catch?
No. If you like working with online decision tools, it should work well for you. But like many free Internet services, you can pay for enhacements. The online tool was developed for Iowa Grain Company, which for $150 a month offers consulting on marketing and crop insurance and will help manage AgYield for you, says Chris Beavers, director of business development for AgYield. If you're using the consulting service and you sell grain at your local elevator, you can call AgYield. "That sale you just made will be reflected in your account, and you san see where you stand as a result," Beavers says.
Iowa Grain is a holding company that also owns a brokerage, EHedger. You can trade through EHedger, but you don't have to.
"AgYield is absolutely vender-neutral," Beavers says. "If a farm in Dallas County, Iowa, has an existing relationship with a broker, crop insurance agent, or elevator, he or she can keep those existing relationships."
Beavers says that some farmers use AgYield to show lenders how margin calls fit into the overall marketing strategy and profitability. "It encourages really good communication between a broker and a lender," he says.
Brokers also like the program because it clearly shows the results of marketing strategies.
But AgYield doesn't share that information with anyone. "It's the grower's information, and he or she controls it," Beavers says.
Iowa Grain Company has a long history in commodities trading. Started by a group of farmers in 1968, it eventually became a large clearing firm. It was the first to route orders electronically into the Chicago Board of Trade agricultural pits. It developed the OAK Trading Platform for Internet order entry of exchange-traded futures and options. In 2008, the principals for Iowa Grain sold their book of clearing business and the OAK trading platform to Archer Daniels Midland Investment Services. Today they run both AgYield and EHedger.
Friestead does use EHedger as well as the AgYield online tool.
"This will be my third marketing year that we're with EHedger," he says. And, he says, he and his father have been impressed by the firm's knowledge and ability to use options.
Like all computer programs, AgYield is only as good as the data entered. Farmers have to input their own cost of production estimates from whatever accounting system they use, Beavers says.
"That's a big job, figuring out our cost of production, " says Janet Tragelles, whose family raises dryland milo and wheat along with irrigated corn, milo, and wheat in the Texas panhandle. "Our daughter-in-law has worked very hard to get us on accrual accounting."
That means that when the Tragelles family puts their costs of production into the AgYield online tool, it's likely to be as accurate as possible. Yet, as in all farming, it's impossible to have absolute certainty. About 85% of their cropland is nonirrigated, in an area that averages about 20 inches of rainfall. It's been four years since their farm has seen anything close to normal moisture, however, and this year is the fifth-driest since 1895.
Tragelles used to keep track of the farm's cash sales, hedging, and crop insurance separately. She likes the way AgYield makes that job easier.
"It integrates all of those factors together, and that's really nice," she says.
In March, AgYield released an improved interface, adding color to the forecast matrix. Greater projected losses shade from pink to red. Projected positive income shades into darker greens.
"The matrix is nice. Your goal is to get the whole thing green," Tragelles says.