International Grains Program

Grain Purchasing Short Course

Overview

The two-week IGP Grain Purchasing Short Course carefully examines eight strategic areas affecting international buyers, traders and processors of grains and oilseeds. Each strategic subject is integrally related. The subject areas are broken down into their tactical and operational parts in classroom lectures, practicums and demonstrations to provide greater understanding. A clear comprehension of the critical relationships between the U.S. and global production, market analysis methods, grain grading, ocean transportation, pricing strategies, contracting, financing, and governments' policies enables the international grain executive to make wiser purchases.

Lectures and presentations are given by grain industry executives and university professors. Most lectures are in 90 minute segments and usually at least one half day is spent on each strategic area. A field trip to futures exchanges, farms and processing facilities is included midway through the course.

Below is a brief syllabus of the lectures, presentations, demonstrations and practicums covered during the course. A list of speakers during the intensive two-week examination of the industry follows.

I. U.S. Grain Production and Marketing System
A. Production System
Explains and examines the U.S. farm structure, the production concentration of corn, grain sorghum, soybeans and the five classes of wheat, the amount of harvested area, yields and tonnes of production of each crop and class. This presentation provides international executives an understanding of the scope and intensity of production of the different grains, and the reasons each grain is grown in each area. Additionally, the usual planting and harvesting periods are presented because of the implications on seasonal price patterns.

B. Global Market
Provides an understanding of the global market of supply and demand for grains and oilseeds.

C. Marketing System - Distribution
Provides an understanding of the U.S. grain storage and transportation system; describes the collection of grain from the widely dispersed production system as well as the on- and off-farm storage system; and explains the distribution system moving the grain to the domestic and international markets. These presentations seek to provide an understanding of how grain flows by truck, rail and barge to the ports of the United States and how efficiently and quickly large amounts of the grain contracted by the overseas buyer is delivered to the port elevators. The details of the system helps make clear the price discovery process.

D. Marketing System - Information and Pricing
Provides an introduction about available market information and how and where grain prices are discovered. Makes the international grain buyer aware of the available information provided by the government and private analysts.

II. Market Analysis
A. Fundamental
Presents global and U.S. wheat, corn, grain sorghum and soybean supply and demand situations. The international buyer receives up-to-date analysis of the fundamental factors in the market. Presentations discuss the key variables used in evaluating price scenarios for developing pricing strategies.

B. Technical
Provides technical methods and analyses to the international grain buyer. The advantages/strengths and disadvantages/weaknesses of each technical pattern and cycle are explained. With an understanding of technical as well as fundamental analysis, the international grain executive has the appropriate information to develop or refine grain pricing and purchasing strategies.

III. Grain Grading
A. Federal Grain Inspection Service
Provides an understanding of the U.S. Grain Standards Act and its regulations and how the implementation of the uniform grading system serves the needs of the international grain buyer. Also, grain weighing and fumigation procedures are discussed. The various grading factors for each grain are explained as well as the different loading plans that are available to ensure receiving grain meeting the contract specifications of the international buyer.

B. Grain Grading Practicum
Presents the importance of each grade and non-grade factor as it is related to the processing of the raw grain. The nature of the grain itself and the importance of qualitative and physical characteristic factors are explained. This "hands-on" laboratory exercise gives the participant a clear understanding of the methodology and rationale of grain grading.

IV. Ocean Transportation
Provides a thorough understanding of the terms and conditions in contracting for ocean freight vessels and the supply and demand for ocean freight vessels. The steps in determining the costs used to calculate ocean freight rates for shipping grain on bulk-cargo vessels are illustrated followed by practicums.

V. Pricing Strategies
A. Futures Markets, Options, Cash Markets and Basis Pricing
1. Explains the theory of futures and options by illustrating the use of futures and options in pricing grains with problem sets.

2. Develops a clearer understanding of alternative pricing strategies for importers using futures, options, basis pricing, or C & F pricing using realistic case studies.

B. Alternative Pricing Strategies
1. Presents the various factors which influence pricing and strategies such as the demand and supply of each grain and competing grains, proteins, and oils.

2. Discusses the advantages and disadvantages of alternative strategies such as futures contracts, maximum price contracts, basis or unpriced contracts, and flat price contracts;

3. Explains how and when a combination of strategies may be used such as going long or short calls and puts, as well as establishing synthetic long and short positions in the futures market.

4. Shows the dynamic relationship between 'price' and 'risk' relating to contract terms, grade and quality specifications, timing of delivery deadlines, and grade loading plans.

C. Successful Management Approaches to the Market
Presents sound business management concepts for predicting and projecting the future likelihood of events happening in the market. This requires the buyer to ask the correct questions, identify important market variables, choose the right measures of outcomes, and make plans to carry out the decisions in order to be profitable in a competitive business environment.

VI. Contracting Grain Purchases
A. NAEGA and GAFTA Contracts
Discusses the importance of contract clauses and covers the various options and techniques used to settle disputes between buyer and seller including arbitration.

B. Price and Risks
Provides an understanding of the U.S. export system by illustrating quality and price relationships and risks associated with contract specifications and shipping periods.

VII. Financing Grain Purchases
A. World Banking Markets
Provides an understanding of these markets and international loan syndications.

B. International Terms of Payments
Discusses terms explaining the level of risk to an exporter and importer.

C. Stand-by Letters of Credit
Discusses why and when they are used.

D. Collection terms
Explains them and the procedures.

E. U.S. Government credit guarantee programs
Presents GSM-102, GSM-103, PL-480 programs, their purposes and terms.

VIII. Current Issues Affecting Management of Grain Purchases
A. Policy
Discusses the World Trade Organization, Codex Alimentarius, and phytosanitary, environmental protection, and food safety issues.

B. Science
Presents the recent issues related to scientific developments such as genetically enhanced grain varieties and new processing procedures to make new products from grains.

IX. Processing Practicums
A. Wheat
Conducts wheat milling, baking, feed/food extruding, and feed milling practicums for the participants. These practicums provide understanding how different wheat classes are milled, and what products are baked from the flour of each wheat class.

B. Feed Grains, Soybeans and Soybean Meal
Provides an understanding of the different animal feed formulations as well as how the equipment and procedures affect the soundness of feed pellets, the consistency of the feed and the nutritional quality of the feed. Additionally, the handling and use of by-products are discussed.

X. Field Trips
A. Provides understanding of commercial wheat milling by visiting a flour mill.

B. Provides understanding of the commercial process of converting soybeans into meal and oil by visiting a processing plant.

C. Provides understanding of the commercial conversion of corn and grain sorghum into animal feed by visiting a feed manufacturing plant operation.

D. Provides understanding of scientific crop management systems and the complex marketing alternatives available to U.S. farmers by visiting a farm operation.

E. Provides understanding of scope and nature of the operation of futures markets by visiting the Kansas City Board of Trade or the Chicago Board of Trade.

XI. Business Contacts
Provides the international grain buyer personal contact with the export suppliers of U.S. grain, with ocean freight suppliers, with grain market analysts, and with other world grain importers. This is accomplished by interaction with grain merchandisers in the classroom and in visits at the boards of trade, visits to plant operations and interaction with other international executives taking part in the short course.