Selecting a Commodity Broker: A Few Things to Consider

1
Selecting a Commodity BrokerA Few Things to
Consider

• Prepared by Paul Dietmann, Sauk County
  UW-Extension Agricultural Agent
• Commodity Marketing Basics Class
• December 10, 2003

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• Look for a broker who understands the
  agricultural commodity that you produce
• This is especially important in dairy. Not many
  brokers understand dairy futures and options.
  The Risk Management Agencys Dairy Options Pilot
  Program (DOPP) approved broker list would be a
  good place to start.
• Find out about extra services the broker provides
  in addition to executing trades
• Many brokers provide market newsletters, daily
  e-mails, etc. Some offer occasional outlook
  seminars. You want good, timely information but
  dont need to be overwhelmed.

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• Look for a broker who understands the local cash
  market as well as futures and options
• Your commodities will end up being sold in the
  local cash market regardless of whether you place
  a hedge, buy an option, or sign a forward
  contract. Its good to have a broker who tracks
  the local basis and knows historical cash prices
  offered by various local buyers.
• Your broker should understand how price risk
  management fits into your production and
  marketing plans
• You want a broker who can help you develop a
  marketing plan that fits your production goals,
  risk-taking profile, financial situation, and
  ability to manage the plan.

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• Find a broker who is willing to help you learn
  how to use futures and options in your operation
• It takes a while to understand the mechanics of
  futures and options, and to get comfortable using
  them. You want a broker who has the patience to
  help you, not just execute your orders.
• Get recommendations from other producers
• Although the percentage of producers using
  futures and options is low, there are enough
  around that you should be able to find a three or
  four different recommended brokers. Take the
  time to meet the brokers, get a sense of their
  business styles, and find out about services
  offered. Commissions dont vary that much its
  more important to find a broker youre
  comfortable working with.