With the harvest wrapping up, many producers are starting to seriously think about how to make the most of things while marketing their crop.
The good news is that, generally speaking, prices are looking good, Bruce Burnett, Glacier FarmMedia’s director of markets and weather information, said.
“This year the market fundamentals — depending on commodity — have been reasonable to very bullish,” Burnett said during a recent conversation.
“Of the commodities that are bullish right now, I would say canola is in that group because of the situation in the oilseed complex in general.”
He added that pulses, particularly peas, are bullish because of some very strong demand, and wheat prospects are a little less bright simply because there is a record global crop right now.
“But that doesn’t necessarily say anything about what it’s going to look like in six months,” he said. “Russian drought is the thing that’s making the market move today. Tomorrow it will be something else.”
So how does a farmer ensure their business can take advantage of these prices?
Burnett said the key message is that when prices are on the rise, it’s important to ensure that you take advantage of some of those prices as they present themselves.
“You can get almost paralyzed thinking that prices can go a bit higher,” he said.
He points out that many farmers are already likely a quarter or a third of the way into their marketing plan.
“This is a good time to step back and revisit the plan.”
He suggests resetting profitable levels for your farm to ensure they’re reasonable.
“Give yourself a chance to take advantage of higher prices,” he said. “Revise your target prices a little higher. But remember to execute in terms of making sales.”
He recommends taking a look at your production and making adjustments, if necessary. The other factor is crop quality.
“Crop quality is generally good this year — so if your crop is poor, it is the time to look at the dynamics of marketing,” said Burnett.
Based on the market and overall crop quality, a farmer may find they have hit their break-even point, and are sitting in profitable territory. If that is the case, it is not necessary to do anything but market the crop according to the business plan they made.
However, Burnett points out that for commodities that have futures (like canola and spring wheat), there are “carries” in the market that a farmer can take advantage of to increase revenue.
A carry means that the price increases over time. Oftentimes, a carry is looked at as an indicator that the market is expecting the prices to be higher in the future. While it’s not always a perfect indicator, Burnett says it’s probably a safe bet at this time.
“Right now, these carries are quite a bit stronger than they have been in the past,” he said. “So I think that’s a good indicator from a price perspective.”
There are a number of ways a farmer can exploit this market function.
“They can market the grain now for future delivery and capture. We call it capturing the carry,” said Burnett. “If you’re bullish on prices; if you have a premonition that the Russian crop is going to fail next year, then you can wait.” And Burnett says that’s what the marketing plan is all about — making sure you’re disciplined enough to capture profitable levels, but not get too carried away.
Burnett notes that unpriced grain is risk. While it’s great to try to maximize revenue, with anything related to the market, you can leave yourself overexposed. Then, if something negative happens and prices drop dramatically, you lose some potential profit.
“This is why I emphasize profitability in terms of your comfort levels,” he said. “Taking some risk off the table is not a bad thing; even though you may miss the potential for higher prices in the future.”
With a marketing plan in place, the biggest uncertainty for farmers at this stage is what kind of grade they’re receiving this year. There are premiums and discounts based on the grade.
“The fortunate news on the Prairies is generally, we’ve seen some high grades,” Burnett said.
It can be important to be aware of what kind of discounts are out there, particularly if you have some lower-grade crops to sell.
Of course, farmers may be disappointed that the premiums for the highest quality are not going to be quite as robust as they were last year. “But that uncertainty is out now. You know what the quality is. If you don’t know what the quality is, go get it graded,” said Burnett. “You can get it graded at a number of places, including the Grain Commission, or go to the elevators and see what their discount schedule is.”
Burnett says that for some of the pulse markets especially, but also for wheat and canola, farmers should let the buyers know the quality of grain, they have.
“They’ll probably want you to put in a target price. I think those are good things, but, I think the farmer should put time limits on them. In other words, leave the offer out for two or three weeks and then pull it after a week or whatever your preference is. Because otherwise, the buyers know that’s available, all they have to do is pay your price.”
He also said it helps to look at multiple buyers.
“Of course, there’s a distance limitation because of transportation costs, but it is worthwhile checking out alternate areas,” he said. “Even in a high-quality year like this.”