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Photo: Amy Mayer/HPM
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Photo: Amy Mayer/HPM
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Photo: Amy Mayer/HPM
Business Of Agriculture
On a frigid winter day, Chad Hart tries to warm his economics students at Iowa State University to the idea of managing some of the risk of farming using the commodity markets. Because, as he told them on the first day of class, farmers don’t make money planting or harvesting crops; they make money selling them. And Hart knows that marketing—managing those sales for the best profit—can be intimidating.
The day’s topic is margin calls. After class, student Robbie Maass stays to ask Hart a couple of questions. About three years ago, Maass returned to his family’s Iowa farm after working in the movie industry in southern California. Now, he says he wants to learn the business side of agriculture.
As part of the class, Maass is playing the Commodity Challenge, an online game available in many states that offers the opportunity to play with different market tools without the risk of losing any money.
“It’s all about maximizing profit with risk management,” Maass said, though he’s still learning how exactly to do that. “I’ve got to understand it more before I can present it to a couple of farmers who’ve been successful for over 20 years.”
The farmers Maass wants to impress are his parents and they’re trying to stay open-minded about their son producing a marketing plan for them. A few weeks after the class on margin calls, Robbie Maass opens his Mac laptop in the farmhouse kitchen to show his mother the game.
Learning Through Gaming
The Commodity Challenge is like fantasy football, but for crop sales.
In fantasy football, you put together your fake NFL team and then the real-life games govern how your team does. In the Commodity Challenge, you’ve got fake bushels of grain. You line up a marketing strategy, watch the real markets and then see what profit—or loss—your decisions earned you.
Leah Maass looks over her son’s shoulder as he checks the corn and soybean prices and shows her the different moves he can make in the game.
“You guys experienced margin calls in this yet?” she asks him. Years ago, Leah Maass explains, she and her husband worked with a marketing company and it didn’t go well. “That’s where we got real familiar with that term, when we were using marketers.”
“We studied it for a day,” Robbie replies.
This game is structured and it makes you think about what you’re doing, and we’ve pretty much not been very structured, I hate to admit, over the years.
Margin calls, hedging, put options, futures markets… these are unfamiliar terms for most people—farmers or not. But used wisely, the tools can set a farmer apart. They can insulate against the lowest prices and remove some of the uncertainty in cash flow. By planning ahead, farmers no longer rely on the spot-price for corn or soybeans on the day they decide they need cash. It’s a more methodical process than Leah Maass currently uses. She says she talks to neighbors and the local elevator manager and takes in the market shows on radio and TV.
“This game is structured and it makes you think about what you’re doing,” she said, “and we’ve pretty much not been very structured, I hate to admit, over the years.”
But Leah Maass is hopeful that as Robbie learns the ins and outs of the different marketing tools he may be able to help her improve her strategy.
Future Of Farmer Education
Farm groups operate commodity games like this one across the country because risk management is so important for farmers. With the ability to store more grain on-farm and with Internet access to market data, savvy farmers can be well-poised to make better use of marketing tools.
When they have marketing plans, farmers are less likely to make the risky decision to wait for a better price, or to be stuck selling at a low price because they’re short on cash. Ed Kordick, commodity services manager at the Iowa Farm Bureau Federation, says online learning tools like the Commodity Challenge are the future for educating farmers. And with today’s lower corn prices, he expects to see more interest in risk management tools.
“When profits are very good people want to lock them in,” Kordick said. “Or, when profits are narrow, like I think this is the time period that we’re entering, people see that risk as something that they have to manage.”
Robbie Maass is steeped in the details now. Because unlike all those fantasy football coaches who will probably never run a real team, Robbie’s game may soon influence how he manages grain in reality.