Built on the basis

For this farm, finding a way to participate in how local grain prices get calculated has opened the door for growth and success

Top marketers know that marketing isn’t only the act of selling, it’s the act of knowing.

In particular, top farm marketers not only know their own strategies, strengths and needs, they also know how they can make them mesh with the strategies, strengths and needs of their customer, whether that’s an elevator down the road or an end-user a long haul away.

More than that, you can also tell you’re talking to a competent marketer because they seem able to make complex marketing concepts and techniques seem simple, especially if they’re Peter Archer.

Together with his wife Donna, Archer crops 1,600 acres, runs a custom farming business that does planting, spraying, and harvesting, and also operates a grain elevator, Maizeing Acres Inc., just outside of Warkworth, halfway between Toronto and Kingston.

Add in a trucking business that they’re also growing, and it all seems very complicated, layered and connected.

However, Archer describes himself simply as a basis trader. “We buy grain, hedge it and look for opportunities to sell it,” he says.

It’s a deceptively simple way to describe the depth of the Archer family’s success.

When Archer started farming in 1994, none of his four children (Ryan, Marilee, Borden and Burton) had been born. He wasn’t married yet and he wouldn’t even meet his wife and future business partner, Donna, for two more years.

He’d just quit school, twice. “I studied engineering at McMaster for one year and I really didn’t like it,” he says. So he tried studying mechanical engineering technology at Loyalist College and was just starting his second year when he had a eureka moment.

A classmate — the kind who was always questioning the professor — provoked an outburst. He said: “You don’t get it! The whole thing with education is not what you learn. All that’s important about education is that you learn how to learn.”

Archer had never skipped a class at university and spent hours on assignments in the library. At that moment, he realized he already knew how to learn.

“That’s when it hit me; I wasn’t learning anything from sitting in a classroom. That’s when I quit school. Looking back at it now, sometimes I wonder why it took me so long.”

Once in business, Archer turned to industry experts like Roy Smith as mentors, and he gained knowledge through trial and error, mostly from the errors.

“Pretty much everything I’ve learned,” Archer says, “I’ve got a lump on the back of the head from.”

To Archer, a clear understanding of the psychology of grain markets can be as essential as knowing the fundamentals.

To Archer, a clear understanding of the psychology of grain markets can be as essential as knowing the fundamentals.
photo: Amy Petherick

Market volatility then wasn’t what it is today, and at that point he had no intention of getting into the grain trading business. Instead, Archer focused on keeping his combine running so he could make a living.

Archer’s farm is a couple hours east of Toronto, an area that used to have some of the lowest basis levels in the province. In those days, moving grain was neither easy nor quick, but it seemed to him that one way to work around this limitation would be to build storage.

In 1998, the Archers put up enough storage to keep 30,000 bushels on site. At the time, their ultimate goal was 100,000 bushels of storage. “And of course, that was supposed to take a lifetime,” Archer adds with a laugh.

The addition of extra storage space has had a huge effect on local basis. Without additional space, grain had to leave the area at harvest and later be brought back for feed. The freight spread would come out of the harvest basis. “Now,” he explains, “the additional space bids for bushels instead of bushels bidding for space.”

Today the elevator can flexibly accommodate 2.3 million bushels, thanks to two dryer systems. Nearly one million bushels of beans and 2.3 million bushels of corn come and go through the facility annually.

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photo: Amy Petherick

That large movement is aided by a good relationship with Kawartha Ethanol Inc. in nearby Havelock. This ethanol plant started operating in the summer of 2010, and created a new local demand for corn coming out of Archer’s elevator.

Still, Archer looks back on his growth with a dose of humility.

“I’ve seen lots of people who I considered to work harder and were probably smarter than I am, but who weren’t successful because their timing wasn’t right to be in agriculture,” he says. “My timing was right on a lot of things, and timing is everything.”

Low interest rates also helped. “Everything I ever needed to do was going to cost money and we’ve been borrowing to expand but working capital was necessary to leverage that,” says Archer. “Working capital gets you through tough times but it also opens up opportunities for you and allows you to put in a bigger dryer or buy up a farm that comes available.”

The basis and spreads will always determine when and where grain will move. “The basis is a living, breathing beast that will ebb and flow and move grain to where it’s needed, when it’s needed,” says Archer.

Grain has and will move both ways across the border, and Archer says the basis in Ontario is not always cheaper than its U.S. neighbours. “If we have more grain than we need, basis will get cheap enough to move it out. If we don’t shut the tap off soon enough and move too much out, the basis will snap to import levels and bring it back.”

In the last year, Canadian farmers got handed a huge “get out of jail free card” with the limping loonie, says Archer. “Today’s bid of +C$0.85 is equivalent to -US$0.25, if we were back at par, we would take $1.10 per bushel out of cash prices and we would hear growers screaming in the wood shed.”

One of the simple marketing strategies Archer has long adhered to is to embrace forward selling, which has helped him capitalize on opportunities. “…Unsold grain after harvest costs you money,” he says to customers who move grain through their facility. They encourage these customers to adopt other very simple disciplined marketing strategies, such as incremental selling and having a written marketing plan.

For many dairy producers it has been a big eye opener when the herd leaves, says Archer. They’ve had to adjust from having a marketing board make risk management decisions on their behalf, to making their own sales in volatile markets. For some, not all farmers, a few years of great prices, where they could pick up the phone and sell at a great profit any day they wanted, damaged their risk management skills, says Archer. “I see them adjusting back to the reality that production agriculture over time, adjusts back close to cost of production for most producers.”

Successful marketers pay more attention to market history than to speculation, says Archer, who doesn’t believe in chasing price spikes. “Honestly, I don’t believe speculators will ever trump Mother Nature.”

Becoming psychologically disciplined might be the greatest lesson he’s learned from his experiences. In fact, if he knew then what he knows now, he may have studied business and psychology back in his school days.

The impact of human psychology in grain marketing leads him to a favourite story about a farming couple looking for marketing advice during a time when the commodity markets were particularly good.

The husband called him about contracting because his wife was giving him grief about his current marketing plan. She wanted to lock in, since prices were more than they had ever sold for, but he wanted to see if the coming spring and summer would bring even better prices.

Archer’s solution for the couple was simple: “I told him, since he and his wife were partners, he should let his wife decide for half of the crop.”

They agreed and before hanging up the phone the man’s wife instructed Archer to book her half. “Not two minutes later, that farmer called me right back to book his half too,” Archer laughs. “He couldn’t risk that his wife would do better.”

Archer says women are often excellent risk managers. This attitude has inspired a “Grain Girls” club that his wife Donna hosted throughout the summer for other farm women who wanted to become more involved in the marketing side of their businesses.

Archer says it’s been a great advantage to have Donna involved full-time in their business and hopes other farms will benefit from the increased interest in marketing these women are developing.

About the author

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Amy Petherick is a Contributing Editor at Country Guide.

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