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Review your last year, plan for next year

This is a good time to look at last year’s marketing plan, and do the math for next year

In my last column, I asked if you know your costs of production for every crop you grew last year. Then I asked if you ran a breakeven analysis for each crop, so you would know what prices you needed to sell at a profit.

If you had done these things and stuck to a disciplined marketing strategy, you would have been prepared to price or hedge some of your grains in the middle of last May as the futures pushed higher. You would have realized that rains were expected across parts of the U.S. and Canadian prairies, which should have triggered you to do some additional hedging, sales, or purchasing put options, in anticipation of a market decline.

It’s easy to look back and say, “I should have done that differently.” This is why, if you know your numbers and focus on locking in profitable prices when they are available, you will become a better marketer. That should translate into better overall profitability for your farm.

You can learn from a review of your marketing practices after the fact because you are not caught up in the emotion of the moment.

Why not lock in some grain for delivery and then use options contracts to play out a gamble of a weather market? If you had done that, you would have locked in some grain at a profitable price and positioned yourself to take advantage of a potential weather rally later in the season. That is what I would refer to as disciplined marketing, as opposed to not pricing anything and gambling on a weather rally.

The new crop year

January and February are great months for looking ahead at the next crop year. Harvests in the major exporting countries like Russia, Ukraine, Asia, Australia and North America are done and the South American harvest will get underway in the next one to two months. The world grain trade has a good handle on what’s available now, and what will be available in a couple more months.

If certain crops are in short supply or the quality of a crop is below average, that could spur some buyers to pre-buy, pushing the price higher as buyers try to get their hands on the limited amount available.

This price strengthening could be short lived if, for example, the South American crop comes off in good supply and quality. Buyers will become confident they can buy grain as needed and slow their pre-purchasing. The price will likely fall.

What if the South American crop comes off as low quality? Buyers will look at securing their supplies from the limited stocks. A scramble will begin, likely pushing prices higher as buyers compete, knowing that there will be no new supplies available until next fall. The situation will become a longer-term price influencer, as supplies are limited until the new crop.

If the crops you’re planning to grow are likely to be impacted, price-wise, by this scenario, what do you do? Start by calculating your costs of production for the crops you’re planning to grow this season. Do a breakeven analysis, to determine profitable selling prices for the grains you’ll be growing. Which crops will return the best margin? Can you flex your acre rotation to maximize potential?

Find out what the markets are offering now for new-crop pricing. Are these values profitable for you? If so, do you lock some in? How much? That depends if you think the circumstances supporting current price levels could change. Do these circumstances have short- or long-term market price implications? If you believe it’s a long-term scenario, you may only want to pre-price a small percentage of your new crop to ensure harvest delivery, and wait to see how markets respond.

If you believe it’s a short-term situation, you may want to sell a bigger portion of your new crop, then consider options to stay in the markets on paper.

Do your math. Get your numbers ready!

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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