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A stellar 2013harvest has shifted the advantage back tobuyers
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 universal-
ly 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 market-
place. 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, trans-
portation-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.
It all adds up to a much more challenging
environment for farmers. The situation un-
derscores the importance of a good market-
ing plan to not only preserve healthy profit
margins, but—perhaps just as crucially—
to ensure adequate cash flow throughout
the year.
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
different things.
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 expe-
rience 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.
Returnof theBuyer’sMarket
By BRENDA TJADEN-LEPP
market
MONITOR
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.
Winter
2014
grainswest.com
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