Basic HTML Version
CropMarketing in2014
By Jonathon Driedger
Market
Monitor
There are tough times ahead, but itwon’t be all bad
Prices are low and logistical
headaches abound, but we can still
find a number of silver linings to
the current sales cloud.
In 2012, droughts, storms
and other weather events combined to
make grain, cereal and pulse production
particularly challenging for farmers
around the world. There was an upshot,
though: those with a crop to sell had a
relatively easy time doing so throughout
late 2012 and much of 2013. Forward
sales were easy to find, basis levels were
wonderfully narrow or even, imagine,
slightly positive, and profit margins were
healthy for most of the major and minor
crops. Many farmers were able to pick up
the phone to make a sale and deliver it a
week later.
Now? Not so much. Many analysts and
farmers have used the word “unprece-
dented” to describe the yields and size of
2013’s harvest. This wasn’t just the case in
Canada, either. Growing conditions last
year were stellar the world over—such
that Canadian farmers face a crop market-
ing environment that is the polar opposite
of a year ago. In short: It has been very
difficult to move crops, and it's likely to
remain this way for months.
Some farmers who booked contracts
find their buyers asking them to delay
delivery by one or even two months
(read your fine print), and many of those
who didn’t forward sell find themselves
with very little control over the timing of
their sales.
If there is a culprit we can point our
fingers at, it’s a Canadian rail system that
is insufficient for dealing with this year’s
bumper crop. Demand is lagging behind
supply, to be sure, and it’s also true that
farmers complain about rail at the best
of times. But the system really is bottle-
necked. How badly? As of mid-February,
feed mills that supply B.C.’s poultry and
dairy industries are continuing to ration
their supplies because they aren’t receiv-
ing the rail cars they need each week to
keep up with demand. Those cars are
passing them by en route to Vancouver’s
port, where grain exporters and terminals
are paying millions in penalties for the
extra days that bulk carriers are delayed.
So, where does this leave an Alberta
farmer with lots of crop left to sell? Prices
are low and logistical headaches abound,
but we can still find a number of silver
linings to the current sales cloud.
Above-average yields mean “free”
bushels to sell, which could go a long
way towards retaining a profit margin on
your crop. Don’t obsess over a low price
per bushel, rather than overall revenue
and profit margin. Don’t be stubborn
about low prices—be aggressive with
your sales strategy.
Demand recovery has also given Alber-
ta’s pork and beef industries a shot in the
arm after prohibitively high feed prices in
2011 and 2012.
It’s also helpful to remember that,
for some Alberta mainstays including
peas, wheat and canola, export demand
is relatively strong; the main problems
lay in transportation bottlenecks. Those
who can afford to ride out the worst of
Canada’s logistical challenges shouldn’t
have too much trouble finding buyers
on the other side. This will be of little
comfort to those with cash flow issues,
but even they might find some solace in
the fact that some lending institutions
are sympathetic to this situation and are
demonstrating flexibility with regards to
crop input payments.
The combination of a lower dollar,
clogged rail lines, and higher prices
offered in South Dakota and Montana
is prompting some growers in southern
Alberta to move their crop by truck south
of the border, despite added complications
of a different system.
One last point: Just because many grain
merchants have pulled their bids until the
fall doesn’t mean they won’t be buying
significant quantities between now and
then. As rail capacity becomes available,
they will make purchases to fill it. They
just don’t have any incentive to commit to
purchases ahead of time.
These thoughts may help farmers
make the best of a bad situation. As for
the future—there’s no better case to
make for doing so than our current sales
environment. These are the pillars of a
good marketing plan, which can greatly
increase the likelihood you’ll stay in the
black during a year when supply abounds
and rail lines struggle.
Jonathon Driedger is a senior market ana-
lyst with Farmlink Marketing Solutions.
Spring
2014
Grains
West
14