Your Reading List

From good planning comes review

The crop is in the ground. Now it’s time to put your marketing plan under review

From good planning comes review

These were my final comments in my last column: “As a primary producer you are fully exposed to these market swings and fluctuations so you need to be prepared to react when they happen to protect your bottom line. Have a marketing and pricing plan in place that incorporates ways of protecting yourself when futures and or basis shift dramatically is critical. Know your numbers and when profits are available in the marketplace, secure them.”

Now that the crop is in the ground and growing, it’s time to move to the next step in your marketing plan: reviewing your situation.

What has changed that may impact your marketing plan? Did your seeded acres change? Is the crop on time or late as far as crop staging? Where is your level of pre-pricing? What has the weather been like and what is the long range forecast? What are world markets telling you?

Changing seeded acres

If your seeded acres changed, you need to review how that is going to impact you as far as how much pre-pricing you may have done.

If you find yourself in a position where your total tonnes of pre-priced grain are pushing you beyond your comfort zone there are a couple of strategies you can use to help rebalance your potential delivery risk. If you priced your grain at a value higher than current markets, you may be able to find a neighbour willing to take on some of those tonnes.

Some companies may let you cancel a contract if your price is higher than the current futures but you can expect to pay an admin fee. Other companies won’t let you cancel a contract unless you have experienced a crop loss due to drought or hail. In that case you would have to do a contract buyback. This could include the difference between your contracted futures value and the current futures value plus possibly an admin fee for cancelling.

Another strategy would be to buy call options for the number of tonnes you are concerned about. This will protect you in if markets run higher later in the year. If you have to do a buyback and markets have moved higher, the value of your call option will have increased to offset the rise in the futures value. Consider the upfront premium you’ll that have to pay for the option contract to determine if it is worth the cost to protect you from unknown risks.

If your seeded acres haven’t changed from your original plan you still need to review your pre-pricing commitments to ensure you are where you want to be based on current market conditions. You may also want to consider using options contracts as a way to help improve your net returns per acre. If markets are lower now than when you did some of your pre-pricing and you believe markets will rebound between now and late next fall, you could buy call options to capture any upward movement in the futures markets. The key to making this strategy profitable is that the increase in the futures markets must be greater than the premium you pay.

If current markets are at higher levels than earlier, but you aren’t comfortable doing any more pre-pricing because of the risk of delivery, you can look at using a put options strategy to set a futures floor price for yourself and protect your profits. Food for thought!

Crop production

How is your crop doing in regards to crop staging? What is the long term weather forecast? What are world markets telling you?

Answers to these questions will help you to better determine what type of pricing strategy you want to deploy.

Here again you must try to determine what you believe markets will do over the next six months to decide if it is worth spending the money to buy options contracts to protect yourself, or if you should wait, because you believe markets are going to stay fairly flat. No one has the answer to this question. It comes down to what you believe, what you are comfortable with and what you can afford to spend to protect yourself.

This is a critical time of year for grain producers as there are so many things happening around the world that impact grain prices. Crops around the world are in various stages from growth to harvest. World markets are transitioning from old crop supplies to new crop supplies. There is a lot of speculation and projection about end results, but in the end it is a lot of guess work that can change in the blink of an eye.

For you to make better decisions you need to be focused on your farm and your numbers so that when the markets provide you the opportunity to lock in profits you are prepared with a plan and ready to execute that plan.

Good luck through the growing season.

About the author


Brian Wittal

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.



Stories from our other publications