Producers' Watch

Grain Merchandiser: Salesperson or Trusted Advisor?


When you think of the title "Grain Merchandiser," what comes to mind? 

  • Salesperson
  • Customer Service Representative
  • Buyer
  • Consultant
  • Strategic Advisor
  • Trusted Advisor

Invest in your relationships to become more than just transactional...

According to research by Dr. Sharma and Dr. Giri for Purdue University, "...farmers are constantly looking to increase their on-field production options and do not shy away from employing new technologies.  However, they prefer to leave their cash-flow worries to their accountants and the marketing to their grain merchandisers.  Dr. Giri further elaborated that some farmers, despite wanting to forward contract, chose not to because they did not trust the merchandisers entirely."

Equation_Full-1-705x492

The Trust Equation, Source: David H. Maister
  • Credibility has to do with the words we speak and represents the quality of being believable.
  • Reliability has to do with actions we take and represents the quality of being dependable.
  • Intimacy refers to the safety or security that we feel and represents the quality of familiarity.
  • Self-Orientation refers to the person's focus and represents the quality of being overly concerned with yourself relative to others (us or them).  Incidentally, this is the most important variable in the trust equation.

I began merchandising grain back in the 1900's ;-).  Early on, I found my niche in leveraging options embedded into cash grain contracts to help producers manage price risk in times of uncertainty.  Options can be a great tool that enable producers to protect downside risk, yet maintain upside potential.  Transparency, education and offering solutions that fit the goals and needs of our customers align well with "The Trust Equation" developed by David H. Maister.  I believe that transparency (e.g. - giving the exact fill on options to the 1/8th of a cent) adds credibility.  Educating producers on how to manage price risk vs. simply buying their grain, leads to reliability.  Offering solutions that fit the need and bias of our producer customers requires a level of intimacy (or familiarity) with producers that is definitely part of the trust equation.  The denominator to the equation (and the most important variable) is Self-Orientation.  Whether we buy or sell grain on a Spot contract, Basis contract, HTA (hedge-to-arrive) contract, or a contract with optionality, we want to add value to both sides of the supply chain.  We want all of our producers and end users to be successful and it is very important for our customers to have a high level of trust with our Merchandisers.

Trust continued...

Think about your current inner circle of trusted advisors...it's made up of people, not corporations.  Some of those people may work for corporations who operate under a set of values (which describes behavior) and should be reflective of the corporation and more importantly, its people.  Integrity is a core value that is absolutely necessary regardless of the business model.

If you don't have an inner circle of trusted advisors, start by asking questions of professionals that can add value to your operation.  Make sure they are good at listening and if they don't know the answers to your questions, see how they respond as a resource, that will focus on your goals and needs.  Over time, you will determine the trustworthiness of your advisors based on your own metrics...not who sells you a product at the lowest price or buys your grain at the highest price, but those who bring value (both short and long term) to your relationship.

Creating Value

Seek out relationships that will add value not only at the point of sale, but will also help you plan from an intermediate and long-term perspective.  We're in the 5th consecutive year of low market average prices for producers.  While knowing your cost of production and having a plan in place is key, the market may not provide many opportunities to execute your plan at profitable levels. 

Some farmers are selling for cash flow today vs. selling because the market has reached their price target.  When times are tough, loyalty and relationships only go so far.  For obvious reasons, waiting until one needs cash flow to sell grain is not ideal.  Further, a grain merchandiser is not able to help much if prices are below break-even.  Even if a merchandiser "pushes" the bid, it may not help much at all if prices are not profitable to begin with. 

Working with a good merchandiser on a forward contract at price levels above break-even can have positive long-term benefits.  Unsure about forward contracting?  Ask your merchandiser about forward contracts that will protect downside risk, while maintaining upside potential.  If you protect your downside risk at a profitable level and maintain upside potential, you've guaranteed yourself a profit and will sleep better at night knowing that if the market rallies higher, you will be able to participate.


Competition for Relationships

Competition is a good thing.  Competition generally drives two things:

  1. Price Competitiveness -   Whether you're buying inputs or selling your grain, competition keeps pricing in check and is advantageous for producers.
  2. Innovation - Competition drives companies to innovate in terms of technology, products and services.

Having multiple entities compete for your business (and your trust) is a good thing.  It is possible to build relationships and trust with multiple individuals and corporations, even if they compete with one another.  You may even decide to have competitors within your circle of trusted advisors.

"We need people in our lives with whom we can be as open as possible. To have real conversations with people may seem like such a simple, obvious suggestion, but it involves courage and risk." --Thomas Moore

I agree with the quote from Thomas Moore above, in that it involves courage and risk to open up and have real conversations about your business/operation.  There's another quote that comes to mind from Warren Buffet - "It takes 20 years to build a reputation and five minutes to ruin it."  That being said, it's worth it to invest in your relationships and strive for them to be more than just transactional.


 

Rob Huston, Vice President

Written by Rob Huston, Vice President

Vice President, Origination at Gavilon Group, LLC. An innovative leader with a successful background in risk management, sales & digital marketing, futures, options and OTC Derivatives. More than 20 years of successful, progressive experience with a demonstrated performance record and diversified management expertise.

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