The Council Risk Management Strategy Training Leads to Sales of U.S. Sorghum

By using Market Access Program (MAP) funds in March 2020, the Council partnered with Kansas State University’s International Grains Program (IGP) to conduct risk management strategy sessions with major end-users throughout northern Mexico. During these consultations, the Council learned that some Mexican companies were already utilizing futures and options by working through brokerage firms, while others opted out of using these tools due to the associated costs. The Council determined that if the Mexican market utilized these strategies more, it would bridge the gap between U.S. cooperatives’ opposition towards the provisional price strategy that Mexican end-users prefer, ultimately generating sales.

As a background to this risk management program, in 2019, the Council utilized EMP funds with a major layer operation in Jalisco, Empresas Guadalupe, to introduce them to sorghum suppliers. On this trip to Kansas and Texas, they made several contacts with cooperatives and suppliers who could handle shuttle trains of sorghum to its facility producing 330,000 metric tons
of feed per year. This trip laid the groundwork for their sales execution after new risk management strategies were developed.

Empresas Guadalupe participated in the March 2020 risk management assessment program where the Council recommended education on the basis and fundamental market issues. This program was the last in-person contact with major sorghum buyers, which turned out to be quite timely, given the currency crisis caused by COVID-19 in Mexico. In April 2020, The Council
again invited Empresas Guadalupe along with other major buyers to our first zoom webinar also on risk management, which gave all of our customers reassurance that the Council was tuned into the current market challenges during the pandemic.

As a result of the recommendations provided by the Council’s risk management tour in 2020 and the contacts they made in 2019, Empresas Guadalupe adjusted their least-cost procurement buying model with basic options strategies to lock in better rates for 2020 and manage their foreign exchange positions. This positioned them to be able to import more grain
from the United States and keep their business profiting despite the economic downturn. Empresas Guadalupe substituted local corn imports for U.S. origin due to the price advantage found after adjusting their buying model.

As a result of this engagement spanning two years, Empresas Guadalupe imported three shuttle trains of sorghum from Kansas. The Council invested $78,582.00 of EMP funds through 2019 trade team travel, consultant fees, and webinar implementation in 2020. The sale was valued at close to $4.5 million, which represents an ROI of $56 per $1 of EMP invested.