Tuesday, March 04, 2008

Customers are not always right...

But they are always necessary. In the past few days two unrelated events have caused me to ponder the nature of how grain producers will engage with with our customers.

First was an interview with Russ Sanders whose title [Marketing Director, Quality Traits, Pioneer Sales and Marketing] - like practically all corporate shingles - tells you precious little about what he actually spends his time doing. I talked with him about a new venture within Pioneer to set up "an eBay for corn". [I will post a link when the site is open]

The idea is producers would list the quantity and quality of their inventory and buyers would bid for it [I think]. At the least, producers would have an online readout of daily bids to consider. Obviously this looks like a great idea from the producer perspective, especially right now when supplies of everything from wheat to sunflower seed is critical.

It also will likely be useful to producers within range of several grain users such as - oh, anybody in Iowa with its approximately 957 ethanol plants. The allure of having the strong hand in the market is powerful and this service would not only aid producers in capitalizing on it, but will also help Pioneer advance their made-for-ethanol hybrids. And he also admitted that Pioneer would be looking to share in the value created by this service. My thought was the grain business is eliminating layers right now. This program seems to be going the other way.

Through a certification program, growers could command premium prices by guaranteeing specific grain quality specs on their offerings. Then when they are ready, they just choose the buyer they like for reasons they chose.

On the other hand, I just received notification that by April my biggest customer - Cargill - will have brought full online capabilities to their website (about which I have posted mucho). Not only can I get all the bids around me, I can sign contracts and track deliveries almost real-time. For someone who is constantly checking to see if their records match mine - this is huge.

[Fair disclosure: I have been a Cargill supplier for years. I like their people and their corporate attitude, other than their tendency to refer to me as a customer. Their checks never bounce.]

Rather than a better way to play the field, I am looking for some commitment in my value chain. For example, in years like this, when Cargill is scrambling to find every kernel they can, I think the opportunity to establish a deeper relationship with our 1700 acres will pay off big for both of us. There is a market value for fidelity, and that's the path I think pays off better in the long run as opposed to an extra nickel or so on a January bid.

Cargill is trying to find programs that secures their incoming grain. I'm working to find ways to secure my tenure on rented land. I smell overlap here. Their ability to stand between me and volatile markets can allow me to stand between my landowners and those volatile markets.

Maybe it's just because I've been married for 147 "husband-years", but I believe commitments pay off in the long run. I also think the grain users [like ethanol plants] who are the targets of the Pioneer plan will come up with ways to do an end-run around open auction grain origination.

Just like farmers who loath cash-rent auctions, our customers probably aren't thrilled with being treated like interchangeable economic units. If ties of trust and good faith are good for farmers and landowners, I think they should be beneficial for farmers and grain users.

At any rate, having this choice will allow us to see which business model works well, and where. There is no universal answer for our marketing challenge, and while I have gotten used to being very wrong very often, I am glad to have the chance to choose for a change.

I'll post more when we see how these program develop.

3 comments:

Anonymous said...

John, how do you calculate "husband-years"? I'm curious, because today you claimed to have 147 under your belt, yet in Jan. '03 you claimed 260. This sounds like the kind of calculation I need to use on my "accountant", since she seems to have a tendency to use some of these on me.

Blubberball57 said...

I guess when you are married, (25 yrs. here), it seems like an eternity and you lose track of the time.
These brokers may sound like a farmer can just sit back and watch as bidders fight over them, like a schoolgirl at a dance, hmm. Seems to me we have enough bidders and traders as it it. It's like when the price of milk went up recently. Farmers got around a dime a gallon raise out of this, however the price for a gallon of milk at the store rose somewhere between $0.50-1.25. If we had another "iron in the fire" handling milk we would probaly have to decide between milk, medicine or paying the utilities.

John Phipps said...

Anon:

My earlier calculations were, of course, metric.