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By JONATHON DRIEDGER
MARKET
MONITOR
Soundresearchmakes for
bettermarketingdecisions
As we get into the very tail
end of harvest, growers will have followed
through on the part of their crop mar-
keting plan that moved what grain was
necessary to manage any lack of storage
space. The focus for remaining invento-
ries is now on extracting the most value
possible, while still meeting any other
farm-level constraints such as ongoing
cash flow needs.
Ideally, these post-harvest sales have
already been mapped out in a marketing
plan well in advance, although even then
growers may need to shift their strategies
based on the size and quality of their har-
vest, as well as any changes to the markets
in general. It’s also not too early to be
thinking about the 2015 crop.
It’s important for producers to engage
in well-researched analysis for each crop
on their farm as they consider their next
move. This includes not just incorporating
an opinion on the direction of the broader
grain markets overall, but also how each
individual crop will behave
relative
to oth-
er crops. This dictates what should be sold
more aggressively (those with the greatest
downside risk or least upside potential),
and those with which to be more patient
(those that have greater upside potential
or less downside risk).
Crops that typically carry the biggest
downside risk are those that are hold-
ing some premium but where supplies
are poised to build. For example, green
pea values spent 2013–14 trading at a
historically wide premium to yellow peas
due to tight supplies, something that
carried over into new crop bids through
this spring and summer. Pent-up demand
created a strong pull for the period im-
mediately off the combine, but a sizeable
production increase in 2014 creates the
risk of prices pulling back once this ini-
tial surge has been satisfied. Flax could
be similarly susceptible.
Feed barley may not have a great deal
of downside from current bids, but upside
is also limited. A huge drop in Prairie
production will keep the barley supply/
demand table tight, but the large U.S. corn
crop is weighing on the entire feed grain
complex, particularly when an abundance
of other substitutes are also available
(including DDGs and feed wheat).
Crops that have shrinking supplies
and/or growing demand are in a better
position to be relatively stronger over
the course of the year. Fewer acres and
a reduction from last year’s record yields
means a smaller canola crop at the same
time that demand will remain strong. A
bearish soybean complex provides a head-
wind, and there is a limit to how much of
a premium canola can sustain, but basis
levels and movement opportunities should
be solid all year.
Wheat futures may not have a great deal
of upside in the short term due to com-
fortable global supplies, but the prospects
for better basis levels over the course of
the year may also mean that this crop has
relatively less downside from a cash mar-
ket perspective, and some cautious upside
optimism for later in the year. This could
be the case for higher grades and protein
levels in particular.
It should be noted that relative strength
doesn’t automatically mean higher abso-
lute prices. But weighting sales to those
with better potential helps lead to a higher
overall return.
Another consideration is seasonal
trends, and those upcoming factors that
can shape the outlook for a crop for the
next several months. Oilseed markets
are sensitive to South American weather
through the midwinter. Pulse crops are
heavily affected by the Indian winter
rabi crop harvested in March and April.
Domestic feed grains tend to show some
upside in December, and again in early
spring during road ban season. Wheat
is a crop that sees a harvest somewhere
in the world every few months, and so
the supply channel is continuously being
replenished.
But fundamentals can change and
seasonal trends aren’t foolproof. Market-
ing plans need to respond accordingly. It’s
critical that growers continually stay on
top of events, and are able to sift through
all the market “noise” to drill down to
those factors that will actually impact
Prairie bids.
It’s not easy to extract the most value
possible from the crop in your bin. Mar-
kets are uncertain and dynamic. Under-
standing the resulting impact to each
of the crops in your mix, and having a
well-researched opinion on how those are
likely to affect prices going forward, will
go a long way toward helping you make
the best decisions possible.
Jonathon Driedger is a senior market ana-
lyst with Farmlink Marketing Solutions.
Fall
2014
Grains
West
16