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Three Steps to Merchandising Success
by Sherry Lorton

Finding ways to improve margins is a constant challenge for grain and feed operations. Costs continue to rise while at the same time traditional handling margins are getting slimmer as more users compete for bushels, and fees from storage and services are not enough to keep up with the rising costs. Elevators need other sources of revenue to maintain a profitable business and it is here that merchandising can make a real difference.

Merchandising provides the means for elevators to capture better margins through basis trading. However, it involves more than simply knowing how to hedge grain. The ability to generate consistently profitable margins – the kind of margins that make a noticeable impact on a business -- comes through the implementation of a focused merchandising program. There are three components that make for a sound and sustainable program within an organization.

Skills! Skills! Skills!

A strong foundation in the fundamental skills of basis trading is at the heart of a successful merchandising program. Good skills are needed in three areas: Knowing how and when to buy basis, how and when to sell basis and how to effectively manage spreads. Getting the true value of grain from the basis is accomplished with a balance of skills in each of these areas.

Basis trading expertise also requires a thorough knowledge of local basis. Opportunities in basis trading are dependent on local basis movement. Thus, if you are to be successful in making proper basis decisions you must have a good understanding of local basis values and the forces that influence its movement. People who are the most successful at merchandising have a keen sense of the basis and instinctively know what a good basis is to buy and sell for their trade area.

Build a Knowledgeable Team

It takes a team effort to get the best results from basis trading. There are many daily routines that go into the proper execution, tracking and accounting of basis transactions. These day-to-day activities are most easily and effectively accomplished by trained administrative personnel. The same is true for grain origination. The grain merchant should not have the sole responsibility for buying grain. There are many others in the organization that have regular contact with customers that can make excellent grain buyers. Including more people in the grain buying process can greatly expand and enhance an elevator or feed mills grain origination efforts.

Building a knowledgeable team also includes keeping upper management informed and in support of the organization’s merchandising goals. There needs to be a consensus among key personnel as to the direction of the company’s merchandising efforts and the resources to be committed to it. A merchandising program benefits most by having a complete team within the organization that is single-minded and focused on the same objectives.

A Commitment to Discipline

The final component of a successful merchandising program is discipline. Skills are important to capturing basis opportunities but discipline is the glue that holds it all together. Having a disciplined merchandising program is all about focusing your efforts on the aspects of the market you can control, and not being distracted by those you can’t.

Buying grain, developing new markets to sell to and managing basis positions are all activities that can have a positive impact on your business. Time spent on things of a speculative nature serve no real purpose in merchandising and produce only uncertain, and oftentimes costly, results. It is not just the financial costs but the time, effort and worry you spend on speculation when you could be focusing on more productive activities. A combination of discipline, skills and teamwork will build a healthy, profitable and lasting merchandising program for your business.

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