Marketing grain online benefits both buyers and sellers

by Emily Wilson
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Within in the past year, selling and trading grain online has become a valid option for many producers, buyers and traders. Online web ventures targeting grain producers and grain buyers present a portal that caters to their specific needs, particularly cash grain trading pits, weather, market information and expert commentary.

Realizing the importance of this new trend of online business in the grain industry, the Grain Elevator and Processing Society planned an educational session entitled "E-commerce in the Grain Industry" for its annual conference last March in Phoenix, Arizona, U.S.

At that session, Mark Byrne, vice-president of business development for CyberCrop.com, explained why marketing grain online is beneficial to both grain producers and buyers.

"The objective of all e-marketplaces is to enable the market's participants to quickly take advantage of the powers of the Internet, creating improved operating efficiencies and profitability," he said.

Those in the grain industry know that the agricultural supply chain is large, fragmented and full of inefficiencies.

"We wanted to help producers and buyers improve their relationships," Byrne said. "Cybercrop.com didn't want to take over the industry, we wanted to be a tool for the producers and buyers to use."

Several reasons pointed to the potential evolution of online grain marketing. Byrne noted that according to the U.S. Department of Agriculture, agriculture is a $400 billion dollar industry. Also, well over half of all farms with sales of U.S.$250,000 per year have Internet access, according to Farm Progress Companies. Among producers of corn, soybeans, wheat and grain sorghum with 500 or more acres in the Cornbelt states, 67% are Internet users, Byrne said.

Producers also seem more inclined to do business online. According to a Goldman Sachs report, farmers have a 5 to 1 incidence of purchases on the web, compared with consumers or small businesses. Combined with the fact that the average grower sells grain 10 to 12 times a year, Byrne said the site could potentially be a critical tool indeed.

 

VALUE FOR ALL. In all the components of a cash grain transaction, from price discovery through negotiation, risk management, logistics, weights and grades and finally to settlement, there are many inefficiencies and opportunities to improve the entire transaction process for both parties involved.

"While growing grain is challenging, selling it is even more taxing," Byrne said. "A vast majority of grain producers say they lack confidence in their ability to sell their crops for the highest net farm price, and are looking for new alternatives to market their grain."

The producers who take the time to search for the best bid often spend substantial amounts of time calling potential buyers.

"An online cash grain exchange is a tool that can provide accurate, timely pricing information and current buyers' bids to grain producers," Byrne said. "Better price transparency and price discovery are critical if growers are to have confidence they are making the most profitable pricing decisions."

On the other side, grain buyers execute time-consuming contracts. Trading online can help reduce those costs and expand the buyers marketplace, Byrne said.

Online grain trading can save grain buyers large amounts of time and paperwork. Merchandising and logistics inefficiencies at many grain elevators can easily exceed (U.S.) 3 cents per bushel, Byrne said.

"Buyers achieve peak value when all the paperwork is removed from the system and contracts are executed and maintained online," he said. "Making this information available 24 hours a day through the Internet can eliminate significant phone discussions, allows access when most convenient to the producer and enables the buying organization to focus time on value added areas of their relationships with the producer."

In addition, CyberCrop.com expects the Internet to encourage larger numbers of producers to participate in growing and marketing specialty crops because they will easily be able to find buyers around the U.S.

"Growers can find buyers online who want certain value-added traits and then grow crops to meet those specific criteria," Byrne said. "Conversely, buyers of specialty crops can set premiums for certain crops, and the online exchange can help them communicate their needs to growers."

Internet trading enables growers and buyers to both offer and take advantage of numerous value-added options.

 

USER FUNCTIONALITY. The key to getting growers, buyers and traders to use online business-to-business sites is to deliver service and functionality to the users.

This has been a major part of CyberCrop.com's success, according to Scott Deeter, CyberCrop.com chief executive officer. The company continually puts together focus groups with its clients to improve the site according to their needs and uses.

Since CyberCrop.com's launch last spring, the company has released three new software program upgrades to meet the requests of its clients. A fourth upgrade is scheduled for release in mid-April.

The new software, called Client Manager, allows farm managers and marketing advisors to use one login for all of their accounts and clients. Before, these professionals — who try to find the best prices for several clients' goods — would have to login each time they wanted to view bids for a different client.

"This was a feature the managers and market advisors specifically asked for," Deeter said. "We met with them in the fall and we built this with their feedback.

"We hold focus groups on a regular basis, with those who use and might use the site. We consistently improve our product."

In September, CyberCrop.com launched the FOB Farm (Free on Board at the farm) feature where the buyer picks up the grain from the grower and pays freight. This is another option that buyers have when they make a bid.

"We met with buyers and they told us how to build it, and we put the software together," he said. "That's how we work."

The site's Trader to Trader program launched in December extends commodity trading from first buyer to second buyer, Deeter said. For example, an elevator that buys 300 bushels of maize from a grower can then sell that grain to either a processor or a truck, rail, barge or port terminal.

An online freight matching service called Load Scout was also launched in December. The service helps truckers find loads and helps shippers find trucks. Already, nearly 1,500 companies have signed up a total of 40,000 trucks. The system automatically calls the cell phones of drivers in the vicinity to a requested shipment, Deeter said.

"It started as a service for hopper trucks to pick up grain shipments, but it has become so popular that we've expanded to flat-bed and refrigerated trucks," Deeter said. "Grain companies are using it a lot. Adoption on this has been faster than in any other area."

Trust has always been an issue in online trading because growers want to know who is buying their grain so they feel confident that they will get paid for their product.

"We built CyberCrop.com with the help of the grower," Deeter said. "They wanted to know who they were selling to. Growers typically sell to several buyers, so as long as they see the buyers they know on the site, they are comfortable."

The many benefits for the growers in this transaction format, especially the ability to counter-offer buyers, has helped persuade many producers and buyers to try online trading, Deeter said. In addition, third-party research has concluded that bids online can be as much as 6 to 10 cents higher per bushel than traditional bids because elevators save money in the reduction of paper costs and employee time savings.

"The future effects of the Internet on our industry will be dramatic," Byrne predicted. "The changes and benefits will be limited only by the time to adopt and participants' desire to change."

 

ACCELERATED EVOLUTION. "Accelerated evolution" is the term that Byrne used to describe the process of the industry adjusting to and utilizing this new technology. There are ever-changing barriers to the success of marketing grain online. For instance, the levels of connectivity to the Internet must continue to improve, as well as end user skills.

But Byrne is not discouraged. He realizes there is a certain adoption life cycle to every innovation. "It will take time before this is accepted, but there is potential," he said.

There are certain categories of people within the adoption life cycle, he said. The innovators are the technology enthusiasts, and the early adopters are the visionaries that lead the pack. About one-third of the population fall into the cautious, analytical early majority, he said, while another third of the population falls into the conservative "late majority" group. Finally, the skeptics lag behind.

"Bottom line is this can only be evolution," Byrne said. "To think we're going to turn this thing upside down overnight — it just won't happen."

There are 51 buying companies, 14,000 live bids and 12,000 producers currently on Cybercrop.com.

"It is an ongoing campaign to get more elevators online," Deeter said. "There are about 1,700 locations on now. Facilities have a choice between transaction fees or an annual subscription fee. However, the costs are easily offset."

The adoption cycle starts off slowly, Deeter said. "I think it will be a three to five year cycle before we see mass adoption," he said. "We've barely been up a year."

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