Farmers’ Grain & Feed LLC sells dairy nutritional products to farmers and larger grain distributors, which can be an unpredictable business.
The market prices of the corn, soybeans, wheat, oats and barley that Farmers’ deals in can fluctuate rapidly, leaving its investments worth very little, said Glenn Schellinger, manager of the 13-employee business in Allenton.
“When the farmers want to sell it, you buy it,” Schellinger said. “We’re here to give them a market. It’s up to us to figure out how to protect it.”
Farmers’ had been buying its products directly from farmers at times that it could achieve a margin and selling it on the local market, but in the last few years had been experiencing a lot of market volatility.
“Because of the volatility and the high cash values of the commodities, it became necessary to protect our investment with some sort of strategy,” Schellinger said. “When cash values went so high and volatile, that wasn’t going to work.”
That’s where West Bend-based hedging firm Stewart-Peterson Inc. came in. The company buys and sells commodities futures, stabilizing the price for companies like Farmers.’
The company works with both buyers and sellers of commodities to manage the uncertainty of the market, said Randy Niemann, president and chief operating officer.
Stewart-Peterson often works with farmers, but has also assisted companies that buy jet fuel, coffee beans, grain for alcohol distillation and other products that experience price swings.
A quick-service restaurant knows how many beef patties it will need each month, but can’t predict what the price of them will be in three months. It might be useful, then, to hedge on beef.
“All hedging really is is doing something today that you were likely going to do in the future anyway,” Niemann said. “The stability really comes from us taking a strategic approach to whatever the market could do.”
Prices on agricultural products are unpredictable because they are partially based on weather patterns.
“All it takes is for one significant weather event to come through and prices can change pretty dramatically,” Niemann said. “Weather is a huge determining factor for what happens in agricultural markets.”
Stewart-Peterson has about 50 employees at its three locations: West Bend, Yates City, Ill. and Champaign, Ill. It has added four or five positions this year and is always in a hiring mode, Niemann said.
The company was founded in 1985 by Scott Stewart and Roy Peterson. Stewart took sole ownership in 1995.
Its business plan is based on taking a unique approach to the commodities market. Instead of considering an outlook-based approach, predicting where the market will go, Stewart-Peterson uses a market scenario planning strategy for whatever the market does.
Its Market 360 consulting service provides feedback and monitoring tools for clients as they execute a strategy based on their business’ price trends, basis expectations, seasonality, price directions probabilities and options volatility.
“We found that the consulting business line was really a different way to approach the market and a different type of service to offer,” Niemann said. There are just so many unforeseen events that can predict pricing that many times people don’t see price changes coming.”
Stewart-Peterson now has clients across the country, with most in the Midwest. The thriving agricultural and food production industries in the area have fueled its growth.
As the global focus of the market has increased and markets are impacted more quickly by world events, volatility has steadily risen over the last several years. This is a benefit to Stewart-Peterson, because it brings in more clients who are looking for stability in an uncertain economic time, Niemann said.
The company has grown by double digits each year for the last eight to 10 years, he said.
While it has many national and some local competitors, Stewart-Peterson sets itself apart through its unique strategy, Niemann said.
Goldman Sachs recently cut its near-term outlook for commodities on the GSCI in the second half of the year, but that doesn’t necessarily reflect the area Stewart-Peterson trades in, he said. Its strategy also factors in any market condition.
“If you think about specifically agriculture, over the last number of months, it’s been a good place to be,” Niemann said. “People will come in and out of the commodity markets and when they do that, they bring more volatility.”
