Risk Management: The key to profitability
By Beth Helding, Grain Sales Leader
Our mission statement at ALCIVIA is advancing our customers through innovative and responsible solutions. In reflecting on this statement, especially the responsible solutions portion, we understand we must take the emotion out of the market volatility and focus on risk management. This applies to both producer solutions and solutions for the company.
With extreme volatility, the risk for the end user grows exponentially. With the margins on grain being pennies in some cases, ALCIVIA needs to protect our exposure on purchased grain. Here is just one example: our elevator locations are the “middleman” handlers of the grain we purchase. We can only turn around and sell the grain for what an end user finds value in purchasing it for. We can only pay what the Cheez-It manufacturer is willing to pay. We do not physically make the Cheez-Its here at ALCIVIA.
When Russia invaded Ukraine at the end of February, most of the end users that we sell grain to went to a “no-bid” situation. ALCIVIA, we feel, had two choices to respond to this most unusual situation. We could either go with “no-bid” to the producer group, taking away the opportunity to sell into the market rally or, option two, widen the basis in a way that helped to buffer the extreme volatility and risk in owning the grain. ALCIVIA decided to give producers the opportunity to sell the grain and respond with a widened basis. We are not speculators of grain, we are hedgers. We are happy to help producers manage their risk and we have a big job of simultaneously managing the cooperative’s risk. We are proud that we were able to offer a bid during that difficult and uncertain marketing environment. Fast-forward to today and the basis is beginning to shape up in many markets due to the trade settling into a new range; end users are able to more clearly establish the value they are willing to pay.
A responsible solution for risk management we are proud to provide our producers is the availability to visit with our grain marketing specialists. We encourage producers to continue focusing on bottom-line decisions. There is not a single person out there willing to say when a market correction will occur, but as history always repeats itself, we can be certain that it will eventually happen. We would encourage producers to continue focusing on risk management. Recognizing that input costs are at unprecedented levels, we encourage you to put pencil to paper and see that the high cash values for this fall are worth selling into.
Please reach out to us if you would like help with your risk management plan. We are always willing to assist you.