Wittal: Weather premium returns to markets

Oct. 9 — The U.S. Department of Agriculture’s production numbers came in at levels that the trade had previously speculated they would, so markets turned their focus on the upcoming forecast for the weekend, which calls for cold and frosty weather over a large part of the northern grain belt.

All grains ended up for the week as weather premium has been built back into the markets.

If the frost this weekend is severe, we will see a continued rally next week, but if the frost is light I would expect grains to lose that weather premium rather quickly as harvest resumes.

Financial indexes and energy markets continued to show strength, closing out the day and week with gains. The U.S. dollar rose almost half a cent today.

The Canadian dollar also rose another seven-10ths of a cent to close at US95.8 cents. This was due to an unemployment report showing over 30,000 new jobs were created the past month, when analysts were only expecting about 5,000 new jobs, so the dollar went on a run. The dollar is up 3.45 cents over last week’s close.

The Dow Jones December quote closed up 58 points at 9,805 today, 336 points over last week’s close.

Crude oil closed up eight cents a barrel at US$71.77, up $1.82 over last week.

Corn closed down one to 3.6 cents a bushel today, up 29 cents a bushel for the week.

Beans closed up 13-28 cents a bushel today, up 79 cents a bushel for the week.

Wheat futures closed down one to six cents a bushel today. Minneapolis December wheat closed down 2.2 cents a bushel for the day, up 26 cents a bushel for the week.

Canola closed up $5.50-$10.60 per tonne today, up $8 for the week.

November Western barley futures closed up 60 cents at $151 per tonne, up $1.40 per tonne this week.

Risk management

I had readers respond to my article yesterday about locking in input costs and pricing grain for new-crop. Unfortunately, they experienced an emergence problem due to the cold spring and ended up having to buy out of priced contracts at a time when the markets were not in their favour. They did it right by locking in costs and a profit based on an average yield. They managed those things they had control over, but they got caught by what is probably the biggest risk in farming today: production risk.

As I mentioned to this reader, if I had but one wish, I would ask for it to be a production guarantee so that I would know each year what I would produce per acre. Then the rest is fairly simple to calculate. The cost of inputs and the prices of grain fluctuate enough throughout the year that I should be able to lock in costs and prices at levels that would provide me with a profit, now that I know what my production would be each year. If it were only that simple.

There are ways to reduce your production risk through crop insurance, of course, and if you are pre-pricing grain a year in advance, you can also use a call option strategy to protect you further, so if you have a yield wreck and can’t meet your contract commitments and the future markets continue to climb, the call option will offset that futures risk. This is not cheap, but it is another way to protect yourself, depending on how much of your crop you decide to pre-price. 

Have a great Thanksgiving. — Brian

— Brian Wittal has spent over 27 years in the grain industry, including as an elevator manager and producer services representative for Alberta Wheat Pool, a regional sales manager for AgPro Grain and farm business representative for the Canadian Wheat Board, where he helped design some of the new pricing programs. He also operates his own company providing marketing and risk management advice for Prairie grain producers. Brian’s daily commentaries focus on how domestic and world market conditions affect you directly as grain producers.

Brian welcomes feedback and information on market conditions in your area, such as current offering prices, basis levels, trucking premiums and special crops contracts. Contact Brian today.

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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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