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Market dynamics

How have the markets changed since spring? Let’s start by looking at Prairie weather to date:

March/April: Late snows left ample moisture but threatened to delay seeding and/or potentially reduce acres seeded.

April/May: Warm weather allowed for quick seeding.

June: Excess moisture flooded some areas and made spraying a bit of a mud fling at best. Crops were under water stress.

July: Heat of 30+ degrees brings thunderstorms with more rain and severe hail.

With the amount of ground water out there, we can expect more of this type of weather cycle (hot days followed by storms).

Around the world

As of right now, a huge U.S. corn crop is expected and the bean crop is at or above average.

Wheat in some parts of the U.S. experienced drought again this year, but the area affected is not near as big as last year. Overall, wheat production should be up.

Argentina is harvesting its second corn crop — said to be a bumper crop. The earlier soybean harvest in South America was above average.

Crops in Europe, the Former Soviet Union region, China and Australia are mostly doing well.

The markets

How do you try to build a marketing plan around all of this?

World supplies should rebuild themselves this year. This has become fairly evident when you look at the 15 to 25 per cent drop in prices that we’ve seen from old crop to new crop values.

The major marketing risk factor I see is weather uncertainty.

Remember, you’re trying to secure profits, not trying to pick the tops of the market. When prices are profitable, lock them in to your advantage.

Pricing strategies

Here are some pricing strategies you can use to secure profits.

1. Wait. Avoid pre-pricing until harvest, so you know what you have to sell. The big risk here would be if we have a bumper crop on the Prairies and futures values drop drastically — you would lose out on locking in some earlier profitable values.

2. Price small amounts. Pre-price small portions of your anticipated crop at profitable levels as the growing season progresses. The risk here is if you end up short on production you could be at risk of having to buy back your contract.

3. Hedge. Use a traditional hedge strategy to lock in your futures values. You need a trading account and funds to put the contract in place plus additional monies for potential margin calls.

4. Use options. Use options contracts with or without pre-pricing contracts to set floor prices and reduce delivery/pricing risk. You need a trading account and funds to put the contracts in place.

Use put options to set a floor price and not have any delivery commitment risk.

Use call options to protect any pre-priced tonnage so that, in the event of a production loss and rising market prices, the call option will protect you so you can buy out your contract with no additional risk.

Weather markets can be extremely volatile. You need to be prepared to react when prices dictate you to do so.

Have your marketing plan ready to execute on a moment’s notice. †

About the author

Columnist

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.

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