DON’T LET OFF-GRADE GRAIN LEAVE YOU HANDCUFFED
BY JON DRIEDGER
There’s no magic wand that can spin lower-quality grain into gold, but you can make the most of a difficult situation by putting in the legwork of taking samples, expanding the network of buyers that you talk to and being open to creative marketing options.
Every marketing action (or inaction) involves a decision around the trade-off in risks. Hold off on selling? Maybe the market goes lower. Make a sale? There is the risk of the market moving higher, potentially leaving money on the table. Hedging in the futures market eliminates the overall price risk, but still leaves the potential for basis levels to weaken or to miss out on physical delivery opportunities in a needed window.
Another critical risk trade-off takes place when growers make forward sales ahead of harvest. You exchange price risk for yield and quality risk until the crop is safely in the bin. However, if prices are attractive, then this is often a tradeoff well worth making, particularly if you don’t sell more aggressively than you are comfortable with.
Fortunately, quality concerns weren’t a big problem on the Prairies this past season, but a quick look back to last year’s harvest reminds us that this can be a huge challenge. If you do end up harvesting a lower-quality crop and your crop isn’t already committed, you can partially salvage suboptimal quality by doing a bit of leg work.
First, know exactly what it is that is causing the downgrading. Take representative samples of your inventories—right down to the individual bin if necessary—and get them graded by an independent third party. Buyers will be more willing to work with you if they understand exactly what they are dealing with. In some cases, end users are looking for and willing to pay up on specific traits that are outside of the general Canadian grades but fit their specific needs. In other words, one No. 3 Canada Western Red Spring isn’t the same as the next to many buyers.
Second, shop your samples around widely, including to buyers that you don’t normally do business with. There are some companies that specifically deal with off-grade inventories. The supply chains that these companies service may be better able to work with lower-quality grain than others. This could allow them to offer you a better price than an elevator that would be less efficient at working with the quality and traits that you have.
Cash grain brokers can be valuable as well. They deal with a wide range of buyers—ones that you may not think of contacting yourself—and know exactly what their individual needs are. They are tuned in to which companies are looking for various qualities, and are also aware when someone may be caught a bit short. This can result in a slightly better price, but is more likely to provide an opportunity to find a home for off-grade grain that might otherwise be difficult to move.
If your grain was committed to a buyer for a higher grade, the options are more limited. The first step is to understand exactly what your choices are. What is the discount that you would receive? How does that compare to what other buyers would pay for that same sample? Do you have other grain on your farm that the buyer is interested in, and is the buyer open to co-operating on a “fair” price for your lower-quality contracted grain if you provide other grain as well? Is there a blending opportunity? Do you have the option of buying in grain to fill your contract? Is this economically viable? Some buyers may be more co-operative than others, but the questions need to be asked if you want to make an informed decision.
Jon Driedger is a senior market analyst with FarmLink Marketing Solutions.