Return of the Buyer’s Market
A stellar 2013 harvest has shifted the advantage back to buyers
Looking back on the 2013 harvest, we can summarize the year’s dominant theme in one word: replenishment. In 2012, once-a-decade weather aberrations in all of the major growing regions created extremely tight carryovers headed into 2013. Prices rose to levels unprecedented in recent decades. For grain, pulse and oilseed growers, it all translated into a comparatively easy period of doing business. It was the proto-typical “seller’s market.”
A year on, it’s a very different scenario. Production conditions were nearly universally stellar across the world in 2013, resulting in a substantial market shift that now favours the buyers. In Alberta and elsewhere, many growers harvested 30 per cent more crop than usual. That could translate into higher gross revenues, to be sure. But in aggregate,
it also becomes the equivalent of having 30 per cent more competition in the marketplace. As far as crops go, specialty crops like flax are perhaps a little more insulated from this shift compared to wheat and durum. But to make matters worse for everyone, transportation-related logistical problems abound as the bumper crop moves through the system. Often, there
aren’t enough railcars to keep up with the flow of grain. Elevators fall behind on their shipments, and suddenly the whole supply chain is experiencing more headaches.
Whether you plan to hire a consultant or forge ahead on your own, here’s one approach to consider in the context of 2013/14 grain marketing realities for Alberta growers.
It all adds up to a much more challenging environment for farmers. The situation underscores the importance of a good marketing plan to not only preserve healthy profit margins, but—perhaps just as crucially—
to ensure adequate cash flow throughout
To put things in perspective: I visited Camrose, Grand Prairie, Westlock and a few other Alberta towns during a November 2013 speaking tour, during which I met numerous farmers who had yet to sell even 10 per cent of their crop. Their stories were similar: they were waiting for prices to return to healthier levels. They had struggled to absorb an average gap between sale and delivery of one to two months, rather than the one to two weeks common in 2012. This created major problems for those with bills to pay—a land payment or a fertilizer purchase—in January.
Some farmers also failed to see the potential for their increased yields—free bushels, in a sense—to offset the lower prices on offer. This year, profit per bushel and profit per acre were often two very
A good marketing plan begins with an informed market outlook, takes into account farm-specific considerations, and then builds a sales strategy that strikes a balance between profit margins, cash flow and risk exposure. Whether you plan to hire a consultant or forge ahead on your own, here’s one approach to consider in the context of 2013/14 grain-marketing realities for Alberta growers.
Take the long view to avoid stress down the line
Given the current outlook, one strategy is to lock in some pricing and delivery contracts for 2014 production to ensure efficient management of cash flow requirements and price risk. Booking in some movement for next fall will make for a less stressful experience of playing the market with the rest of your crop later in 2014/15. As the livestock industry rebounds from its 2012 woes, Alberta growers in particular will be well positioned to take advantage of possible increases in regional feed demand. This will be easier to do if basic cash flow constraints are already taken care of.
Brenda Tjaden-Lepp is FarmLink Marketing Solutions co-founder and chief analyst.