A group of American farmers has taken a page from mutual funds to market their grain.
About 400 corn, soybean, wheat, rice and cotton farmers have signed up more than 15 million bushels this year to a farmer-owned marketing co-operative designed to manage price risk.
CoMark, which stands for Co-operative Marketing Alliance, bills itself as a “hassle-free” way for farmers to sell their grain.
One of the co-op’s advisers, Mark Feight of International Agribusiness Group LLC of Detroit, Michigan, explained the rationale behind the group to a conference of agricultural bankers on Oct. 3.
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Feight said most farmers don’t have the time or discipline to do their own risk management and hedging.
Futures markets have changed, he said, because of the dominating presence of centralized hedge funds.
These funds buy as prices rise and sell as they fall, creating more volatility in grain markets.
Add to this the introduction of electronic futures trading and night trading, and watching markets becomes a full-time job.
Buying options can help lower price risk, Feight said. “Everybody is using them in the grain trade – not farmers.”
Seven years ago, Arkansas farmer Charlie Lowrance looked at his poor hedging record and figured he was his own worst marketing enemy. Feight said that Lowrance’s biases, and lack of time and concentration worked against him.
So Lowrance and his neighbors worked out a concept they feel brings them the best results for the lowest cost.
They formed the co-op, and invited others to join for a fee of $10.
They commit a portion of their grain, in 5,000-bushel increments, to a pool, for a fee of 10 cents per bu. for soybeans, and seven cents per bu. for corn and wheat.
The co-op hires at least two professional advisers to watch markets and make recommendations for a portion of the pool.
Feight said they are chosen for their disciplined trading systems. A co-op administrator oversees their work to ensure they are following their plans.
The advisers are paid flat fees. They make recommendations to the pool, and the pool then executes trades with an unrelated broker.
Farmers have some choices about when and where they deliver their grain.
The co-op pays farmers an advance of about 90 percent for their grain. It uses the remaining 10 percent to finance the pool’s trading positions after farmers deliver the grain.
Like a mutual fund, the pools send farmers quarterly performance updates. Farmers can also check weekly updates on the co-op’s website at www.comark.org.
Feight said the pools’ gross returns so far this year are:
- Twenty-five to 50 cents per bu. ahead of current prices for corn.
- Even to 40 cents per bu. ahead on wheat.
- Even to 25 cents per bu. ahead on soybeans.
The pools close in July after harvest, and all money is dispersed to the farmers, Feight said.
The co-op recommends that its members use two or three methods to spread out their risk.
It will only accept half of a member’s anticipated production.
Feight said the co-op has briefly looked at the possibility of setting up Canadian pools.
“I can’t believe it won’t work there.”
He wouldn’t comment on the similarities between the co-op’s methodology and the rationale behind the Canadian Wheat Board because he said he doesn’t know enough about how the wheat board works.
