CHALLENGE ACCEPTED
HOW TO NAVIGATE THE MARKET WITH A SMALLER CROP
BY JON DRIEDGER
With widespread dry conditions, the 2015 growing season was a roller coaster for many farmers. Some areas received enough rain to see larger than expected yields, but that wasn’t the case everywhere. A good portion of farms in the western half of the Prairies now have fewer bushels to sell than had been anticipated in spring, and/or have lower grades to work with. Both of these situations present marketing challenges.
Marketing plans are disrupted when the farm has less grain to ship. Forward sales that may have been made ahead of seeding now become a much larger portion of the total crop.
One effective way of managing risk is breaking down sales into multiple segments. This becomes more difficult when there is less crop to sell, and especially when a good portion may already be committed to earlier forward sales. This puts more emphasis on making the best decisions possible for the rest of the crop.
It’s important to remember that while the Prairie crop was smaller than had been anticipated in the spring, most other regions in the world had a strong growing season. As a result, prices won’t respond to the smaller Canadian supplies in the same way for each market. At the same time, smaller inventories overall also means buyers are competing harder for the Canadian crop that is out there, improving farmers’ opportunities.
The crops of which Canada is a major global supplier have shown the strongest values, particularly pulses and some specialty crops. In other cases (wheat, durum and malt barley), our prices have been higher than what they would be if we had seen normal yields. However, the upside is limited by ample supplies elsewhere. Growers need to understand the market structure and outlook for each crop in order to make the best decisions possible.
To further complicate matters, off-grade grain always takes more work to market, particularly if one wants to get the maximum value for one’s inventory. Usually, the extra effort to shop around samples pays off. Some buyers are interested in particular quality specs rather than the CGC factors that determine grade. Recent years have seen tremendous opportunities to capture much higher values for grain that gets a lower official grade but still meets the needs of the end user. This can be especially true for wheat and durum, although additional value can also be extracted in other crops.
The hard part is knowing the needs of specific end users. This is where cash grain brokers can be really helpful. They communicate regularly with a much wider range of buyers than most growers can, and know what those buyers are looking for.
It is always absolutely critical that accurate samples are taken when shopping around your grain. This is even more important when dealing with off-grade inventories.
Finally, it’s not too early to start making marketing decisions for the 2016 season. Don’t make the mistake of putting together a marketing plan based on prices from the 2015-16 crop year—the dynamics that drive pricing today can and will look completely different from what will shape values next year. That doesn’t mean that we might not see another year of strong prices for crops like durum, peas or lentils. However, one needs to know that next year is its own story and the price outlook for each crop will change accordingly.
The implications of a challenging growing season don’t disappear when the equipment is finally parked for the winter. In some ways, the marketing of that crop only gets harder. But with some diligence and effort, growers can squeeze as much value as possible out of what they have.
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