7 Questions to Ask Your Grain Marketing Advisor
Mar 14, 2017
How to find the right fit for you
Every time we talk to a farmer, we ask, “What’s the number one challenge on your farming operation.” About 99% of them say grain marketing.
Usually our next question is, “Are you working with a grain marketing advisor?” Basically, what are they doing to overcome that challenge? Through those questions, we’ve found that lot of them are afraid of the grain marketing advisors.
So I thought I’d throw together some questions you can ask to help you test an advisor’s credibility. There are so many grain marketing advisors, so this will help you determine if a particular one is the right one for you.
1) How Long Have You Been Marketing Grain?
They say it takes 10 years (or $10,000) to become a master at something. Your advisor should have been doing this work for at least 10 years. We work with one who’s been doing it for over 25.
It’s a question they’re going to expect. Start easy, and get to the hard ones later.
2) What's Your Performance Record?
You obviously want to know how they’re performing. A performance record shows what kind of results they’re getting for their customers.
If they’ve been marketing grain for a long time, but their results aren’t very good . . . steer clear.
What do good results look like? You want to take every marketing year, and the range. For example, let’s say the range for corn this year was $1, the high was $4.50, and the low was $3.50. When they give you their performance record, you just want to know what their performance was relative to the trading range.
You want to get your grain marketers within the top third, or very close. It’s getting harder and harder, though. Grain is bouncing off the bottom for most of the year then shooting up and falling back down to the bottom. Still, the really good ones will be in the top third, the average ones in the top half, and the ones you want to pass on in the lower half.
Another thing to consider is when they get your grain sold. If they get your grain sold in the top third before you even harvest that grain, you’ve got a good marketer. If it takes them the whole year, and you’ve got to store it for six months, you might want to consider looking around.
3) What's Your Marketing Philosophy?
This is asking, “How do you break down the market?”
They might use technical analysis, which means they’re using chart patterns.
Or they might use fundamental analysis, which could mean they’ve got their own grain production model they’ve built over years, and they can kind of forecast what the USDA will report. They can say, “Based on our model, which matches the USDA model, we think they’ll come out with these numbers.”
4) What Makes You Different From Other Advisors?
This is something you can ask any business.
For example, why should you use Cash Cow Farmer’s software vs. our competition? I would answer that Cash Cow was designed by a farmer, and I did it because I had a knowledge of the challenges that farmers face every day. The other people might say they’ve got $20 million in venture capital behind them.
You’ve got to trust in what makes someone different.
5) If You Weren't a Marketing Advisor Who Would You Be Using?
This is one of those zingers, which is why I snuck it in toward the end.
This is a great question in accounting, or legal advice, or anything. You see if they even pay attention to the competitive landscape.
If Cash Cow Farmer didn’t exist anymore, I’ve met the founders of most of my competition, and I would happily recommend answers based on a person’s budget.
If the advisor says, “They’re all garbage,” I probably wouldn’t work with them. But if they show respect for others, you have a good advisor.
You should probably take their recommendation, too.
Listen to the podcast:
6) What's Your Favorite Hedging Tool or Strategy?
The reason you want to ask this is to be sure you’re comfortable with the tools they use. Some people are not interested in having huge grain market hedging accounts.
Some of these advisors will do mostly options, and if you produce a lot of grain, that’s a lot of revenue to hedge. If you’re hedging $6 million in revenue, and the price goes against you by 20%, you’re looking at $1.2 million in hedging losses.
So really ask the advisor their top three tools. If they’re just using futures contracts and options, that’s OK but it might not be a good fit for you. It wouldn’t be for me: I prefer to use the cash markets.
7) What Information Sources Do You Use to Help Make Recommendation Decisions?
This is another like the fifth one. With this question, you’ll figure out how they get their information.
If they say, “We call farmers throughout the U.S. and try to get boots on the ground. We also follow these other analysts and Morgan Stanley,” you’ll know they’re well-informed. Pretty much, you want to see where they’re getting their information, so you know they’re not just looking out the window and selling when grain “looks good.
I know you may be cautious to use a grain marketing advisor, and I can understand why. Still, if 99% of farmers say their biggest problem is grain marketing, there’s a good chance you need help.
Ask these seven questions, and you’ll be doing your due diligence in order to find the exact right fit for your operation.
This post was based on an episode of the Cash Cow Farmer Podcast. To hear more content like this in audio form, subscribe to the show here.