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Grain marketing lessons learned the hard way

Events in 2017 gave us many opportunities to make grain marketing mistakes

I know some of you living in Alberta where the boom and bust cycle of the oil and gas industry is all too common will have seen a bumper sticker on an oilfield worker’s truck that says, “Lord, give me one more chance at another oil boom and I promise I won’t piss it all away this time!”

I may make some stickers for grain farmers to put on your truck windows facing inside, so you can read it as a daily reminder. A couple that come to mind are “Lord, please provide me a profitable price per acre and I promise I won’t procrastinate again,” or “They’re called historically high prices for a reason — because they are usually history fast, so sell!”

This past season was what I would unfortunately refer to as a good teaching and learning year from a grain marketing perspective.

A number of events impacted grain markets. Some provided great pricing opportunities, yet few producers took full advantage to lock in profitable prices. Other events caused chaos and negatively impacted the markets. Now, when we sit down to review what happened, we can see signs we missed at the time.

Looking back at missed opportunities will carry some sting for those who missed them. The exercise is a great way for farmers and marketing advisors to rethink our approach to marketing, so we can be better prepared for the next market event.

The summer wheat rally was easy to see coming as the drought continued to build in June. The reality is that if you are in the middle of that dry spell, it is hard to lock in a contract on grain you might not harvest. Delivery risk can keep you from taking advantage of high prices.

What can you do next time to reduce that fear of delivery risk?

It starts with a risk review on your farm to see how much risk you are willing to take in regards to pre-pricing. With your risk level in mind, you can do some deferred delivery fixed priced or futures only contracts. Companies like Global Ag Risk Solutions will help cover you on delivery risk so you can lock in high prices when they are available. Contact a Global Ag Risk Advisor near you, or find them at www.agrisksolutions.ca. You could also call me, as I happen to be one of those advisors.

You could also take advantage of a futures rally by using futures or options contracts through a broker or an online trading account. This would allow you to gain value in your contract as the futures rise or fall.

India’s 50 per cent pea import tariff that hit in November came as a shock to the industry and to those producers who had only sold a portion of their peas or none at all. The world pea market is very small. India takes about 40 per cent of our Canadian peas; China buys about 30 per cent.

For the previous two years India has had drought conditions and poor crops. They were buying as many peas from Canada as they could get at very attractive prices.

No doubt $12 per bushel peas are hard to forget and a person is tempted to hold on in hopes of those prices returning, but the signs were not pointing that direction.

India had an above-average crop this year so they had ample inventory to meet demand. When our prices started to drop from $8.75/bu. highs to below $8/bu. it wasn’t hard to understand why. It may have been hard for some to accept. Those are likely the ones who held off selling.

This is where I recommend getting away from setting pricing targets based on a dollar per bushel return. Instead, calculate your target price as a dollar return per acre. That will help you to better understand your farm’s profits. You can price grain based on that calculation without getting hung up on a specific dollar value per bushel which may never come.

Malt barley was everywhere across the prairies this year as harvest was perfect for a high quality crop. This was a signal that the market was oversupplied and maltsters would have their pick of the cream of the crop. The earlier a person locked in a price on malt the better. After harvest many producers were hoping prices would rise back above $5/bu., but the reality of this past harvest and world supply is telling a different story.

A Russian radiation leak that was discovered in November is an unknown that could impact markets if radiation is found in the soil or in grains grown in the area. With this being a major wheat-growing area, how could this impact markets going forward? I can’t answer that at this time.


Information correction

In my January 9 column, I stated that grain elevator handling fees were still under the watchful eye of the Canadian Grain Commission, who at one time had a maximum tariff amount that grain companies could charge for their elevating, cleaning, drying and storage services.

I recently received the following email from an industry colleague at the CGC:

“Please note that the Canadian Grain Commission does not set or approve tariffs. Changes to tariffs can occur anytime throughout the year, and the Canadian Grain Commission no longer specifies maximum rates.

“Updates are applied to the website within five business days of licensee submission.”

I am grateful to him for the correction and clarification of information.

This however causes me even more concern — now grain companies have full autonomy to set their own handling fees and revise them whenever they see fit with no maximum fee cap, and all they must do is send the information to the CGC for posting on its website. Where is the oversight and producer protection in this situation?

I found a spreadsheet on the CGC website dated November 2017 that tracks the handling fees charged by all the different companies and there are some major variations in costs among different companies.

A good lesson learned. Never assume, always check what you are paying for handling fees as every elevator is different!

To see this information for yourself, visit the CGC website, then search for “elevator tariffs” in the search box. You are looking for the link called “elevator tariff summaries.” The spreadsheet gives you the information by company.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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