Corn versus Bean Acres

   Corn versus Bean Acres

With the November bean option around $9.50 and December corn around $4, it's not clear if as many acres will switch from beans to corn for 2019.  Corn needs to buy 3 - 4 million acres from beans and that might not be as likely right now.  Are corn futures too low or are bean futures to high?  Basis levels throughout the U.S. indicate bean futures are probably too high and corn is "normal."   

 

It's important to understand the corn / bean price ratio (bean futures divided by corn futures) when it comes to planting acres.  If the ratio is above 2.45: 1, prices favor planting more beans.  If the ratio is below 2.35: 1, prices favor planting more corn.  With current prices ($9.52 Nov / $4.01 Dec) the ratio is 2.37: 1, so there is not an overly strong indicator to plant corn today.  But back on 11/1/18 when farmers were making seed and fertilizer purchases, the ratio was 2.26: 1; indicating farmers should consider strongly increasing corn acres.  While this can help with estimating, no one will know the actual planted acres for at least another couple of months.

The Risk Management Process

Risk Managementa 2 step process:

1.      Identify and analyze exposure.

2.      Determine how best to control minimize and reduce the impact of uncertain events to that exposure.

 

Risk Management Questions

1.      What do you want to happen in the marketplace?

2.      What do you think will happen in the marketplace?

3.      What can you ill-afford to have happen in the marketplace?

4.      What are you actively doing to achieve what you want, while protecting against what you don’t want to happen?

 

Goals—what are your pricing goals?

Each customers goals are as diverse as the customers themselves…but most fit in the categories below.

1.      Stabilize pricing

2.      Margin protection

3.      Attain budget

4.      Eliminate /Reduce surprises

 

Once these basic parameters have been identified, we will formulate a procurement strategy that optimizes the pricing goals and provide a stable cost horizon.

Then all that’s left to do is the step best summarized in a quote attributed to Winston Churchill:

“However beautiful the strategy, you should occasionally look at the results.”

Services.

Develop and Implement Buying and/or Risk Management Strategies

  • Negotiate vendor contracts by coaching your in-house buyers or by acting as the actual buying agent for key contract buying events.
  • Monitor contract progress/depletion to ensure there are no overages or gaps between contracts.
  • Preview/Anticipate Next  Moves:
    • Trigger hedge to buy decisions
    • Trigger next buy timing decisions
    • Set buy target levels to trigger next Senior Team buying review of ownership positions and future strategies.

Procurement Department Evaluation

  • Facilitate interdepartmental communication (between IT, Sales, Marketing,etc...) to help ensure that the whole company is focused on a unified direction and working together towards a common goal.
  • Determine if your current IT/Data Base is keeping you competitive and can recommend techniques, resources, and solutions to keep your department ahead of the curve.
  • Evaluate your procurement department and provide a plan for Right Sizing based on your current, and future required, Staffing Levels and Skill Levels.
  • Coach buyers to:
    • Improve negotiation skills
    • Develop data and tracking tools to monitor contract depletion and markets.

Track Key Commodity Markets

  • Written Weekly Commodity Report.
  • Special Seasonal market report sections included in weekly report.
  • On Request deeper dive analysis of individual markets discussing historical trends, buying opportunities and future prospects.
  • In Person commodity reports to discuss market trends, buying strategies and risk management strategies.

Universal Sourcing Agent

  • Identify vendors for new, unique, or hard to find items; finding exactly what you need at the price you can afford.

Act as your In House Market Expert for Your External Customer Community

  • Market presentations at your customers' offices explaining the current markets and how they impact pricing and availability.
  • Provide weekly commodity reports: “Provided as a courtesy by your vendor….”

Pricing.

 

  1. Basic Weekly Commodity Report Subscription--$125/week or $500/month
    1. Receive one copy of weekly commodity report e-mailed to a single e-mail address
    2. $25 per copy for each additional e-mail address added to the distribution list.

 

  1. Available for “in depth” or “commodity specific” market review consulting sessions (by phone or at client offices):  $2,500/day-session.  Expenses (travel, hotel, meals, etc.) additional.

 

  1. $5,000 monthly retainer
    1. Receive one copy of weekly commodity report e-mailed to a single e-mail address
    2. $10 per copy for each additional e-mail address added to the distribution list.
    3. Receive a monthly commodity market review meeting (by phone).
    4. Receive additional phone and/or e-mail “alerts” as market conditions dictate.
    5. Available for “in depth” or “commodity specific” market review session (by phone or at client offices):  $1,000/day-session.  Expenses (travel, hotel, meals, etc.) additional.

 

  1. 1 hour introductory phone consult--$500

 

About.

JFS Strategic Consulting

JFS Strategic Consultings was started in 2012 to offer small and medium companies the type of procurement strategy and insight, previously only enjoyed by larger companies.

Joseph F. Schmidt

A procurement professional with 25+ years of experience in the development and implementation of risk management and procurement strategies. Beginning in 1982 with sugar markets for the 7-UP Company and then moving to the bakery industries in 1994, Joe Schmidt has spent the majority of his career sourcing the “hard to find” bakery ingredients and developing new methods for taking the volatility out of some of the key commodity markets. His analysis of market trends has enabled many bakers to take more control of their ingredient budgets and stabilize profits.

More Articles...

  1. Welcome.