With record grain production seemingly becoming more likely with each passing day, corn prices are approaching a five-year low and the pressure is on producers to manage their price risk effectively.
For those who had the insight – and good fortune – to forward contract a portion of their grain earlier this year, or hedge at least some of it in the futures markets, the blow won’t be quite as bad. But selling off the combine this fall in the cash market will likely be a recipe for some of the lowest prices of the year.
Make no mistake: commodity marketing is a complex affair with significant risks for both buyers and sellers. But entrepreneurs are working to demystify the process. And, as David Miller explains, an innovative program called GrainBridge has become a popular on-line tool for agricultural educators and students of the trade.
Balancing risk against reward on the farm is a way of life. Gone are the days of making decisions based on a shoebox full of receipts. And passing on the techniques of how to maintain that delicate balance to the next generation usually occurs after family members become business partners.
But two Nebraska entrepreneurs weren’t satisfied with the way information was being gathered for producers.
Pat Kroese, Vice President of Marketing, GrainBridge:...and we just decided ... there's got to be a better way to help our businesses and the producer manage risk and bring all these components together, from crop insurance to your brokerage to your cash grain management to the planning, it seemed like it's all in different Excel spreadsheets and file cabinets. And so we just decided with the technology that is out there we've got to bring it all together.”
Pat Kroese and his best friend Mark Frank took their more than 40 years of combined experience in agricultural financial planning and risk management and applied it to the problem.
The pair enlisted the aid of Chafik Barbar, a computer programmer with banking experience and the three partners launched GrainBridge in 2007. After two years of development the first software went out the door.
The heart of the program allows producers to consider risk factors like input costs and balance them against the potential rewards of cash marketing and futures trading in a real-time environment.
While it’s not the only program of its kind, GrainBridge was one of the first in the marketplace, and its list of clients includes independent bankers, consultants and commodity brokers.
One of the company’s first customers was Farm Credit Services of America, a farm lender with more than $21 billion in assets. In 2010, FCSAmerica began offering the innovative product to some of its 52,000 stockholder-owners. But the Omaha, Nebraska based agricultural lender had a different application for the software.
Carl Horne, Young Beginning & Small Program & Outreach Manager: “And we said, you know, one of our focuses is on the future of agriculture and so we said, ‘when they're starting to talk about marketing and risk management in high schools wouldn't it be nice if we could provide this tool to those classrooms and give them some experiential learning. You know, if we have the best product through GrainBridge, let's get that into the high school level.’ ”
Kroese, Frank and Barbar always had an educational component in mind but there just weren’t enough hours in the day to bring the idea from concept to completion. FCSAmerica agreed to act as the distributor for GrainBridge and in 2012 began giving the program to a limited number of vocational agriculture teachers and FFA advisors free of charge. The beta group included 35 instructors in Iowa, Nebraska and South Dakota.
Initial feedback was positive but almost to a person, the request was made for a curriculum to help guide instructors on the best use of the program. GrainBridge responded by hiring Kim Kidder, a teacher with more than 15 years of classroom experience, to help design an educational component.
The curriculum, released in the summer of 2013 explains the finer details of risk management including more advanced concepts like futures and options trading.
Students learn terminology and teachers can measure performance with worksheets and computer based projects. The program can be interfaced with data from the CME Group or the instructor can act as an elevator operator for the entire class.
So far, FCSAmerica has distributed Grainbridge to more than 200 classrooms in Iowa, Nebraska, South Dakota and Wyoming and the company continues to absorb all the costs for the academic use of the software.
Micah Weber, a Vocational Agriculture teacher in Rock Valley, Iowa was one of the early adopters. In nearly 15 years of teaching Weber has used several different models to show his students how to manage risk.
Micah Weber, VocAg Instructor, Rock Valley High School: “The part that really kind of took my interest was that it was a real world application that farmers are actually using out there, not that there aren't other things that farmers are using, but this was kind of a newer one. I think some of the other type of programs that are out there kind of just have a little bit of an older look to it and that doesn't really appeal to kids. And so the user interface was very user friendly for the kids and I think it was really easy for them to catch on and to use. The hard part about this year was that the curriculum came out and I sat right next to the kids and we learned together.”
Some of Weber’s students use actual data from their family operations to gain skills with GrainBridge that go beyond agriculture. Jerod Hansen lives on a row crop operation near Rock Valley.
Jerod Hansen, Senior - Rock Valley, Iowa: “This is kind of new to me. There's a lot of ways to manage your risk, which I'm not all 100% sure about, but I'm just getting to learn about them here in ag class so this is probably the first time I've heard about them, like futures and options and stuff like that...And it's not just good for ag, it's good for a lot of things. You should be budgeting, keeping track of your money.. “
And Jill Petersen, a first year teacher, also has enjoyed success with GrainBridge in her Blair, Nebraska classroom.
Jill Petersen, VocAg Instructor, Blair High School: “Initially I was just excited. About half of my ag business and marketing class comes from a production background and the other half has no concept. And so to bring agriculture to students in a real, as much of a real life way as you can numbers wise, was huge. I also really liked that it had curriculum with it and so they not only provided me a real time system that real producers are using right now but they connected it to the education world, which sometimes doesn't happen.”
Emily Bledsoe grew up in rural Nebraska, where her parents grow pumpkins and operate a corn maize during harvest season. Bledsoe got a new perspective on risk management when Petersen started using the software in class.
Emily Bledsoe, Blair, Nebraska: “...it was absolutely crazy and then she pulled up this GrainBridge software and I had no idea what she was talking about and then we've been doing this for weeks and weeks and weeks now and it's really interesting.”
For the GrainBridge staff, development is a never ending activity. As suggestions come in from those using the program improvements are made to the software. And Kroese remains upbeat about helping the next generation of farmers and educators develop effective risk management strategies.
Pat Kroese, Vice President of Marketing, GrainBridge: “You know, it has been exciting. The reaction we've gotten in the field has been overwhelming. The interest, everybody wants the tools, nobody says no. It's just a matter of when do we get to it and how do we implement it.
For Market to Market, I’m David Miller.