When I ran into Saskatchewan farmer Brad Eggum at the Crop Production Show in Saskatoon he was hoarse after two days of working a seed booth at the show. “Everyone wants to talk about soybeans,” he said, barely able to talk.
Lots of Prairie farmers are looking to try their luck with soybeans in 2012. My husband and I are on that list. After a less-than-mediocre experience a few years ago, we’ll be giving soybeans another chance on our farm. We had planned to seed some last year, but it was too wet to get into the field at all. So far, this has been a dry winter, and we’re optimistic about finally getting some soybeans into the ground.
As new soybean growers, we can certainly use some advice, and I suspect we’re not alone. Since (apparently) Brad Eggum can’t talk to all new soybean growers in person, I asked him to write an article for the cover of this issue of Grainews. He’s done that — I hope you can put his tips to use.
Of course we’ve been selling canola and pulses in an open market for years. But the end of the Canadian Wheat Board monopoly will bring all kinds of changes to our marketing system. I went to a conference in Saskatoon where some of these changes were discussed.
One of the conference speakers, Bill Wilson, a professor at North Dakota State University’s department of Agribusiness and Applied Economics, said something that caught my attention. When it comes to their ability to hedge risks and forward price their products, some North Dakota farmers believe wheat is the most risky crop they grow.
Although we can use forward-pricing contracts to minimize our risk, just like we do with canola, wheat comes with some added complications.
Canola is a pretty standard product and farmers usually produce a pretty straightforward No. 1 canola. But wheat is a little more finicky and wheat buyers are a little more specific. We’ll need to make sure we’re growing wheat with the exact specifications that buyers want, and selling it exactly when they need it.
We’ve already been getting paid for our wheat based on its protein content, Prairie farmers already know how to grow high-protein wheat. What we’ll have to learn quickly is how to get the most for it in the open market.
Justin Daniels, CWB commodity risk manager, spoke about protein at the Crop Production Show in Saskatoon. He talked about how the CWB has been pooling protein premiums as well as prices. The protein premiums we’ve been getting have been based on the average spread between prices for different protein levels throughout the crop year.
Back in January, Daniels told the audience that the spread between prices for 13.0 and 14.0 per cent protein was about $100 per tonne, but that at one point in the year, it had been closer to $150 per tonne. In March 2011, 14.0 per cent protein was paying a premium of only $80 per tonne as compared with 13.0. And these differences are what the CWB sees at port — spreads may be more volatile at local elevators, depending on what each grain buyer needs from day to day. As Daniels said, “It all depends on the supply and demand fundamentals in your exact location.”
We’ll be able to watch the Winnipeg futures market for general wheat prices, but forecasting the specific price of our wheat will be more difficult.
Futures markets are set up to be very generic. One tonne of spring wheat is one tonne of spring wheat (with 12.5 per cent protein, as specified on the new ICE futures contract). There aren’t provisions for a lot of variability. This is intentional. If the trade contracts were more specific — for example, if you could buy a futures contract for wheat with 12.0 or 13.0 per cent protein — there wouldn’t be enough contracts traded in any one category to keep the price hitched to reality. Generic contracts increase the volume traded and help buyers learn the true price of the product.
We’ll know the price of generic wheat, and we’ll be able to lock in the prices we like (or can live with), but (so far) there’s no way to lock in protein premiums. If we have a bin full of high-protein wheat, we’ll just have to try to sell when the protein spread is as high as possible.
Daniels had a couple of tips to help farmers pull this off:
- “You have to be careful what day you bring your grain in.” As protein premiums will vary over time, it will make sense to keep a close eye on the premiums, especially when you’re holding high-protein wheat.
- To help with that first tip, Daniels says “make sure you’re really tight with elevator staff.” They can help you find out when your specific grain can bring the highest price.
- “You may have to think about your binning situation a little differently,” Daniels said. If you have some spring wheat with very high protein, it might make sense to bin it separately, so you can capture a large premium on a particular day. Will it make sense to invest in extra storage so you have more flexibility to take advantage of protein price premium swings? Time will tell.
- Daniels also suggested that, “If you have high protein in one area of the field, you’re going to want to bin that separately.” After he made this comment, one farmer in the audience pointed out that he lives 25 miles from the nearest protein tester. My husband claims that protein in our fields can vary from one end of the field to the other — it’s not always easy to tell high protein from low protein when you’re in the combine cab.
Protein content will be a big issue, but perhaps not the only one. In the U.S., as Bill Wilson said at the “Operating Successfully in a New Grain Marketing Environment” conference, farmers’ contracts also include other specifications such as moisture, dockage, and falling number.
I wasn’t familiar with the term “falling number.” This is a wheat quality specification that doesn’t get a lot of discussion in Western Canada. But it turns out that buyers care about this measurement. Falling numbers are important for bakers who need wheat to make a specific product. Baking with wheat that has a low falling number can make your dough sticky, and affect the shelf life of your end product. The best falling number for a particular baker will depend on exactly what kind of dough they’re planning to make — different buyers will have different specifications.
Most years, conditions are favourable and falling numbers aren’t a big problem. However, once in a while falling numbers will become an issue. And when they do, U. S. farmers delivering grain that doesn’t meet falling number specifications are subject to discounts set at the time of delivery.
Although the buyer at the Dakota Ag Cooperative told me that he hasn’t seen any grain with a low falling number, they do test for it. Samples of all of the grain they buy are sent to the lab for a falling number test. On the rare occasion that they take in grain with falling numbers that don’t meet the specification, the farmer will be subject to a discount between $US0.15 and $0.50 per bushel. Or, if the falling number is very low, they may refuse the grain.
In this issue, Angela Lovell has taken some time to research falling numbers, so we’ll know what we’re dealing with, if this should this ever become an issue in Canada. Look for her article on page 14. I hope you find it interesting.