Become a better risk manager in 10 minutes or less

In the first episode of Season 7 of Straight Talk with NDFB, hosts Emmery Mehlhoff and Alisha Nord-Donelly get down to the nitty-gritty of marketing with Progressive Ag’s owner and founder, Ray Grabanski. Ray has several degrees in economics and law and is a recognized industry leader in risk management methods. 

Progressive Ag pursues excellence in farm risk management specializing in wheat, corn, soybeans, sunflowers, dry beans, canola, potatoes, and livestock. Each year, Progressive Ag exceeds its goal of 10-20 cents per bushel more than the customer’s previous marketing plan.

In today’s episode we talk about: 

• The success or failure of a farm/ranch often comes down to how good the producer is at risk management . 
• Strategies to become a better risk manager in ten minutes or less. 
• The best time to sell grain. 
• The key to success is always found by asking the question, “How can I get better?”
• Futures price + basis price = cash price. 

A new member benefit with NDFB, Progressive Ag offers invaluable ten-minute-a-week videos created to improve your risk management in ten minutes or less. Check out this and many more of Progressive Ag’s services offered to NDFB members, visit https://www.ndfb.org/benefits/progressive-ag/

Contact your host, Emmery: emmery@ndfb.org

Transcript

[Straight Talk theme]

[00:12] Emmery: Welcome to Straight talk with NDFB. I am your host, Emmery Melhoff and Alisha Nord. We are your Farm Bureau duo bringing you your competitive edge. Today we visit with Ray Grabanski, owner of Progressive Ag Marketing and Crop Insurance Services in Fargo, North Dakota.

[00:28] Alisha: Today we talk about Ray's Progressive Ag Services, the new member benefit to Farm Bureau members, and ways to improve your marketing strategies in ten minutes or less.

[00:38] Emmery: Join us for today's episode. 

[Straight Talk stinger]

[00:41 Emmery: Today we have Ray Grabanski with us from Progressive Ag. How are you today, Ray?

[00:48] Ray: I'm doing just great. How are you, Emmery?

[00:50] Emmery: We're doing great over here. We got some rain today, and yeah, things are looking a little soggy, actually.

[00:56] Ray: Wow! We got a few drops and that's about it. And we have had a pretty dry period the last half of August and in the first eleven days of September. And that's not just the Dakotas. We've actually probably been a little wetter than most of the Corn Belt. There's been almost no rain in the Corn Belt since mid-August, so the crops have gone backwards quite a bit, especially soybeans since August 15.

[01:24] Emmery: Just go ahead and jump in and tell us about Progressive Ag and about what you guys do.

[01:30] Ray: Progressive Ag really is a risk management firm for farm managers helping farmers to manage their risks. Farming is a very risky business, particularly, I suppose, in North Dakota. The further west you go, there's more risk in producing grains anyway. Because of that, we have crop insurance agency and we do marketing. We integrate the crop insurance purchases with the marketing. Back in 1996, they introduced price insurance as well. We had yield insurance since 1980. On the crop insurance side, they introduced price insurance with the old CRC. Crop Revenue Coverage first started in Iowa, then they expanded it to some other states, a couple of... two, three, four states every year. Finally, by the late 90s, they called it Revenue Assurance and CRC, and now they just call it Revenue Coverage. So then they expanded the regular coverage on your own yields up to 85%. But really the cost is prohibitive in North Dakota to go much beyond 75. But now they have programs called ECO and SCO that once you get to the maximum that you can afford to pay in premium, let's say usually 70, 75% in North Dakota. Now you can buy ECO coverage on the county yield, but you get the price coverage, which is going to be critical this year because prices have dropped a lot in corn and wheat from the base price. So, to summarize, we're a risk management firm, we have a commodity brokerage firm, we do market advice, and we have a crop insurance agency, and we integrate that all into basically one program. It's financial risk management for farms, and large farms need that more than anyone because the risk gets bigger when you go from 2000 acres to five or 10,000 or 20,000 acres.

[03:30] Alisha: So what made you want to get into risk management, marketing everything that you guys have to offer? Or did you do something before you got into Progressive Ag?

[03:41] Ray: I grew up on a farm in North Dakota, and the year that I was a senior in high school, our farm was smaller back then, maybe 1500 acres or so, and we had 1000 acres wiped out by a hailstorm one week before harvest. And it was probably the best crop we'd ever had, that I saw anyway in my 18 years. So I learned a lot about the importance of risk management. The financial success or failure of a farm is really determined more by how good the manager is at managing his risks than most other things. It's important to be a good producer, but it's almost more important to be a good risk manager. Understand your margin, understand how to protect that margin and to continuously meet that margin. Because if you ever can't pay your bills, it's game over.

[04:36] Emmery: So Progressive Ag just recently started a member benefit with the North Dakota Farm Bureau. Can you tell us a little bit about what that is and how you got connected?

[04:47] Ray: I think Farm Bureau members are astute at understanding importance of good quality information. And we started a market video once a week where we do a PowerPoint presentation on like a Zoom recording in ten minutes. We summarize the most important market factors that week and any opportunities to sell or opportunities to buy back sold grain or buy fee grain. That is an extremely precise, time effective thing for farm managers. And I think that Farm Bureau recognized that. So we made it available to some of the Farm Bureau management because we could see the power of that. Some farmers will watch TV shows and try to make marketing decisions off of that information. Or you listen to the know you have three minute radio recordings five times a day. But if you're watching an entertainment TV show or a radio segment and it's just a repetition, they're filling up time. They're not giving you the quality information from that day, they're giving you everything. And it's not effective to help farmers actually make good marketing decisions. I think in ten minutes a week we can help Farm Bureau members make good marketing decisions. And we have other supplemental programs that some of our older marketing programs where we do consulting and that but actually that ten minute video, I think, has tremendous power to help farmers do a better job of marketing. And I'm very excited about that technology. We show a PowerPoint presentation, there's video, we show charts, and we talk about the most important market factors in ten minutes. I try to do it ten minutes or less. Sometimes it goes up 15, but most of the time I can keep it to ten minutes or less. And it's very powerful.

[06:41] Alisha: I'm not into marketing whatsoever. It can be very overwhelming, especially when you start talking about spreads and calculated returns. I mean, how do you guys keep it simple? Because I think this is where so many farmers and ranchers get turned off is that there's so many different terms and words and it's very quick, fast paced. How do you guys bring it down to a level to keep it simple and not overwhelm your audience?

[07:10] Ray: Yeah, that's a good question. Actually, I was visiting with one of our staff members today about that. He's a new employee and he was asking a lot of those same questions. So I can see a need for Progressive Ag University. For example, we used to have a 101 course that we did in person, and it was very popular because people wanted to know the basics they didn't understand, they didn't have the background information to understand some of the more sophisticated marketing ideas that they hear thrown around. So we did this one-on-one course and it was like an eight hour, one day course, but people traveled for 5 hours to see that course. So it impressed me that if they were willing to spend that kind of time and money for that kind of course, there was obviously a great need for it, just like you're asking about Alisha. So we are talking about creating like a Progressive Ag University, if you want to call it that. An example is Dennis Prager. He's a conservative man who is doing five minute segments on a topic. He calls it Prager University. And I looked at some of those five minute segments. They take a detailed topic and they would cover it in five minutes. And they had the world's preeminent expert talk about it. And actually I listened to some of those and I thought, wow, in five minutes he might be doing a better job than a semester long class because he does a summary. It would be nice to have the detail behind it too, but I think that has some powerful implications. The last two or three years since COVID we have done meetings that we do in person. We also do one or two at the end of the year, like in February and March, online. And we get a lot of attendance, maybe four or five times what we get at any one meeting. And most of those customers are in locations that we didn't have a meeting at. And it's a very powerful application.

[09:15] Alisha: I think that's awesome because I don't know how many times I talk to my dad and he tells me to go back to school for marketing. And I'm just like, no, I'm done with school. So I grew up farming and ranching. And I would say that's probably my dad's biggest struggle is he wants to be able to work the cows and be in the field and combine. And it stresses him out so much. And I'm going to say way back when, everybody kind of did the same thing. It was like you planted, harvested, sold your grain, and that was it. Well, now it's so much more complicated than that. And I would say it's honestly probably, like you already stated, it is probably the biggest struggle in the farming world right now is can you manage your crops and risk? And it's so much more than it used to be.

[10:14] Ray: Why it's gotten more complicated is that the numbers have all gotten bigger. So, like, my dad's farm when I graduated from high school was probably 1500 acres. Now that farm is farmed by my two nephews, and they're probably 8000 acres. The margins are tighter. The margins are probably one third what they used to be. So you can make a decent living for two families on 8000 acres in North Dakota farm. But it can be a challenge. But the risk is bigger. The numbers are probably ten times bigger. At some of our estate planning meetings this year, one farmer made the observation that his grandfather bought the land for $300 an acre. His father bought that land for $3,000 an acre. He said that he expects that he will be buying the land at 30,000. It goes up ten times in a generation the value of land. So there's an inflation factor there. That's 25, 30 years or so. But the numbers get bigger, and so the risk is bigger. You also can market a year and a half ahead now. That's common. We have an international grain market, and the futures markets go out even two, three, four years ahead for corn and soybeans. Chicago border trade wheat, probably two and a half years ahead. Spring wheat is a Minneapolis Grain Exchange. There's less volume there, but you can probably market a year and a half ahead. Those are the major crops that's probably 75% of all of the land tilled in the United States are those three crops. 

Almost all other crops trigger off of those values, and particularly when you have the flexibility to plant anything once things are planted for a year, you can get distortions in the relationship of canola, for example, to soybeans or barley, to corn or wheat once you have the flexibility now, for the '24 year, we haven't planted that crop yet, so acres aren't locked in. Farmers can still flex acres back and forth. So most markets pivot off of wheat, corn, and soybean prices, but they are offered a year and a half, two, three years in advance. So the period you can market has gotten longer, not just three months after harvest or six months after harvest, but a year and a half ahead of harvest. During that marketing period - two years for spring wheat, three or four years for corn and soybeans - there's a lot of marketing opportunities. This year, corn has probably fluctuated from $4.80, $4.70 futures to $6.40. If you think about that, the break even on corn is probably about $4.80 futures. Now the margins went from nothing to a $1.60 or a 30% profit margin down to zero. So it's very important to recognize when you have a profit margin so that you can lock it in. And since you have more opportunity over time span, you have more opportunity to make those marketing decisions. Plus, you have used to just be a cash market. You'd sell whatever the cash price was on the elevator board that day. Well, now we have a futures market and elevators that are elevator managers more specifically that are sophisticated enough to separate that cash price decision into the futures price and a basis. So you can lock when futures prices soar higher because of a Ukraine war or something along that line, you can lock in the futures price when the futures are high. If the market sags by December, you can lock the basis later by splitting your cash price into a basis lock plus the futures. A lot of times you can squeeze out an extra ten or twenty cents a bushel because basis is more predictable and so those techniques can be very powerful. 

Plus you have options now, so you can do minimum price contracts and you can do price enhancement where you sell a call option against some grain. One of my brokers today was talking about taking advantage of this ECO insurance coverage by buying it using the 60% subsidy the government provides to buy this price coverage through crop insurance and then sell the options back for 100% of the price at a profitable level. So he's getting into something a little more sophisticated. But all of that can be split down into establishing the futures price and establishing the basis. All options is a fancy way of getting around eventually to establishing a futures price. So almost all of those programs that are offered by Cargill and Cenex Harvest States and all the elevators can be reduced to something more understandable, essentially getting you down to a futures price and a basis, which equals a cash price. But cash price is what my father was most familiar with and your father probably too. Now they've gotten a little more sophisticated, but if you get the basics of that down, it's not all that difficult to understand.

[15:43] Emmery: Okay, so back a little bit and do marketing for dummies. You said if we can boil it down and get it down to the futures price and the basis, what would your advice be or what would your strategy be? If you have somebody who is new to doing their own marketing, wanting to be a little bit more innovative, what are the steps that they're first going to look at when they're going to try to do that more innovative marketing?

[16:10] Ray: Okay, the first step would be to actually to track markets like I talked about that ten minute video that we do each week we review. The first and most important thing is what have markets done in the past week. So we summarize what they've done. Then we look at a chart and we say, okay, we've dropped eight cents in spring week this week. In the last month we're down $0.50. You'll look at this price chart, they have to learn how to read a price chart, because a price chart has a tremendous amount of information on one piece of paper. If we use a one year chart, it's got the whole last year's price settlement on one piece of paper. So you could look in January and see what it was worth February, March, all the way down the twelve month period, and day by day actually. So that's the price that buyers and sellers were willing to trade that year. So you got the high of the year and the low of the year. So you know the range that prices fluctuated in. So if you have an idea of what your break even is, so let's say in corn it's $4.80, in soybeans it's $12. So if you know what your break even is, you can look at that chart and say, oh here, look at this, there's $12 on it. Here's when we were above twelve, I could have made money. Here's when we were below twelve, I'm losing money. And one of the things I notice most of the time, year in, year out, if you look at a seasonal, the lowest price a year is traditionally at harvest. So if you've done nothing in the marketing until harvest time and then you sell the grain that you need to, to generate the cash you need to pay your bills or that you don't have room for in your bins, you have an effective marketing program to sell at the lowest price year in and year out. And I think that's someone who doesn't have any sophistication in his marketing plan, they're probably doing that, which is an effective way to get the lowest price year in and year out on a consistent basis. 

So let's flip that around. Let's figure out the times when prices are generally better and then we'll make some sales. Then if we're short on space or need to generate cash for the year. And one of the main things in, for example, corn and soybeans is anywhere from April through the first part of July those are good times generally on a seasonal basis to sell, particularly May and June. June was the high again this year in corn. So it's actually a lot easier to avoid the lows in a market on an effective year in and year out marketing program than it is to hit the highs. But if you want to hit the good profit margin times, knowing your break even, knowing the seasonality of that thing, you're going to do a lot better and you're avoiding harvest sales. That's a pretty simple strategy to get improvement in even the simplest marketing program, more sophisticated from there, of course.

[19:26] Emmery: I would say our most effective marketing years have been looking at that break even price, looking at, so what do I need to sell a bushel of wheat for in order to make money on it? And then calling up the elevator or saying, okay, if the market hits this, then I want to sell 20,000 bushels or whatever that number is. And then sometimes that elevator guy will laugh at me. That happened last year. I called him up and said, hey, I want to sell this many bushels for this much. And he was like, okay. And sure enough, it hit it. And he was like, you were right. And we had one elevator even say, you guys have a decent marketing strategy, but you managed to hit it, you managed to get them. And sometimes you don't. Sometimes it doesn't hit the number you want and so you have to go back and adjust.

[20:21] Ray: Well, let's talk about where do you get those numbers? Well, if you pull out a price chart the last year, what was the high, what was the low? That's a reasonable range in a year. If you pull out the last five years. Now you have an idea, well, in a five year period, it gets above this price. How often, how often does it get below that? You see your break even on there too, of course. But break evens do change from year to year. In the last three or four years, our break even has gone up quite a bit, haven't they?

[20:51] Emmery: Yeah.

[20:52] Ray: So you do have to update that. That's a very important thing. Breakevens are not steady constant from year to year and there's always some fluctuation even within a year, depending on when you buy your inputs. But yeah, just general rule, I think obviously you've figured out a way to find realistic price targets and they may not seem realistic to the elevator manager when he's looking at today's price, but if you're looking at a longer term chart, that certainly is the historical prices which have been acceptable to buyers and sellers. The high is the highest in that period and the low is the lowest in that period. But people are buying and selling every day at every one of those prices printed on that chart.

[21:36] Emmery: And one of the other things about putting that target price out there with the elevator is it takes the stress out of it. I don't have your job, Ray, where I'm reading the markets every day in the detail that you are. And so being able to have that price sitting at that elevator allows me to just go ahead and farm and do my job. And then they'll give me a call when that price gets hit. And I don't have to worry about calling them the day that it happens or for the 30 minutes that it hit that price.

[22:03] Ray: Yeah. And I would almost encourage you a lot of times we'll do that in our futures account. We'll have customers and put an order in, but they won't put an order in. They may need to sell 100,000 bushels at that price. We'll put an order in for one contract. I don't like to put orders in that sit there that everybody can see for. It's like playing cards with your cards showing to all your opponents. So I don't mind putting one lot order in, but if I want to sell 100,000 bushels, I don't put in an order for 20 contracts at that time. I put it in for one when we fill that one. Sometimes my customer will instruct me sell 19 more when that gets filled. And so you're not showing your cards necessarily all of your cards to the elevator manager or the trading company or the whole Chicago Board of Trade because they can see those open orders. But I think that's a very effective thing to do and it's good establishes discipline too, because if you put that order in and you were willing to sell it October when prices were low and it hits it in February, I'm sure. Emmery, you don't back out very often on that, do you? It was the price you were looking for. You got it. So it is important to have some discipline in marketing because where it will become stressful is if you don't get let's say you need 100,000 bushels sold, that you don't have storage for harvest if you don't get 100,000 priced by harvest. Now there is some stress because now what are you going to do? Or if you needed to sell 100,000 bushels, generate cash to pay your bills and pay your landlords, and you didn't get that sold, now you got to get to plan B pretty quick.

[23:49] Emmery: Why don't you tell our listeners a little bit about where they can find you, the information. I'll link the member benefit in our show notes here, but just share about how we can get access to that ten minute video, where we can get your marketing advice and where we can find your services.

[24:05] Ray: So people who sign up to receive that, I think they will get an email. We'll send an email with a link and you can just click on it and go right to that. On Saturday morning. It's posted 7:00 a.m every morning. If you're not on that email, you need to either call us or I believe at Farm Bureau, you can call someone and they will get you on that email. We have a website that has a page posted that we post those videos and call us to get access to that website. I think though, we send an email when it's posted on Saturday morning. And people like that because they're reminded, oh yeah, there is that marketing program and they click on it and actually we find about 60% of the viewers are watching it on their cell phone. It's better on a computer, but a lot, especially during the production season, are watching it on their cell phone.

[25:01] Alisha: Yeah, especially for that younger generation. I'm just thinking those that are joining high school and going to college and a lot that are going into farming and ranching, they're majoring in animal science and soil science. And I don't think a lot are looking at that marketing aspect, which I think we've come across over this podcast. It's probably the number one thing people should actually be going into. And so I think your services that you provide are going to be extremely beneficial for those young adults that are going to be soon farming and ranching with their families to be able to provide this to them. And again, some of those that are a little bit older that might want the younger generation to kind of take that part of the operation over, I think this is going to be a huge benefit for them.

[25:51] Ray: It's interesting. My daughter graduated from law school at Drake and she focused on Ag law, and she's practicing in estate planning. Now she's teaching as an adjunct professor, the ag law course at NDSU. In there, she asks most of the students she has are students from the farm. They're in ag economics at NDSU. So they're from the farm and about two thirds have planned to go and return to the farm. So she asks them, as part of her estate planning, what skills do you need to acquire so that you can start making major decisions on the farm? And the majority of them say it's marketing. That's the one skill that we don't have. That's the skill, like you say, your dad says you got to get those marketing skills. But that is the number one area that they feel they need to improve on before they can become the major decision maker on their farm. And so that's farm succession from generation one to generation two, there's a transition period. Some of those students say it's going to take five years after I finish college. Some say it's going to take till my dad retires, which they could be 60 years old by the time their father retires. So it's a very interesting process, that farm succession. But number one thing that they need to acquire, the skills they need to acquire to take over the farm, that's.

[27:16] Alisha: Good that they're thinking of that now, because I sure as heck wasn't thinking about it when I was in college, that's for sure. But it is when you're thinking about that transition in succession planning, whether it's Grandpa or dad or whoever it is uncle, they want to feel secure. And I think if you can show them with risk management and marketing that you are capable of doing that, especially since finances are everything, that it makes that transition a lot easier.

[27:47] Ray: Right, I can see that. Yeah.

[27:49] Emmery: And that's what Dad's always saying. He says, Come to me with your ideas about how to make the farm better, how to make it more profitable. And so I really think that is the key to any sort of partnership or succession planning is how can you come along something and make it better, really get away from that any entitlement sort of perspective and really look at it like, okay, how can I make this thing better? How can I bring value to something? And I really think the tools that you are providing and the ideas that you have for the future are exciting and definitely a value for all the young producers out there.

[28:24] Ray: I've met some innovative farmers and one guy said that he didn't need to do everything perfect, he just needed to do things a little bit better than his neighbors and he felt that he could be successful in farming. There's some truth to that. So the right question is how can I get better, as long as you're on a farm that's asking that question, even the older generation and the younger generation, that's a key to success right there.

[28:54] Emmery: Well, on that note, Ray, thanks so much for joining us today and for the work that you and Progressive Ag are doing for our North Dakota and other state producers out there. Looking forward to visiting with you again and encourage our listeners to reach out to you and reach out to Progressive Ag and take advantage of the great resources you have to offer.

[29:13] Ray: Thank you and looking forward to working with Farm Bureau members. I'm happy that we have a relationship that we can further develop.

[29:20] Emmery: Yeah, me too, Ray. I'm really excited about it. All right, well, have a great rest of your day and we'll visit again soon.

[29:26] Ray: Great. Thank you.

[Straight Talk stinger]

[29:32] Emmery: You've been listening to Straight Talk with NDFB. To find out more about Progressive Ag's North Dakota Farm Bureau benefit, check out the show notes below or visit ndfb.org-slash-benefits.

[Straight Talk theme]