Just as every farmer has a formula for growing crops, many Prairie producers use a wide range of marketing tools
to get the best price available. Here are some of the strategies this month’s farmer panel uses in hopes of being profitable in an always changing market.
DOUG MCBAIN CREMONA, ALTA.
Malt barley was the only crop Doug McBain contracted in 2009. With such poor spring and early summer growing conditions, he was reluctant to take out contracts on feed barley and canola, which he has done in previous years.
McBain who, crops about 2,000 acres of canola, feed barley, malt barley and export timothy hay northwest of Calgary, actually took out a CashPlus contract through Rahr Malting of Alix, Alberta last September. He committed about 200 tonnes, roughly half the crop, for delivery this fall at a price of $5.50 per bushel.
You sign the contract, and there is an Act of God clause, should you not have a crop due to the weather,” he says. “But once the crop is off, you take in a sample, if it makes the grade, they agree to buy and then you get paid.
If it doesn’t make the grade, then you are released from the contract and you can market it anyway you can after that.” That’s what happened in 2008 when the mature crop froze too many times, which damaged germination. He’s hoping for better results this year.
McBain says the malt barley contract works well as long as the price is appealing. He hasn’t signed a contract for 2010 because right now the price is about $3.50 a bushel, which is about break even, he figures. He’ll hold tight, watch the market and if prices start to improve he can lock in an amount later.
He has in other years contracted both feed barley and canola to a local Viterra elevator, but didn’t this year because the weather was uncertain.
We didn’t know if we would have any crop at all,” he says. “We finally got some rain in August and then half of what was there was hailed out, so it was best we didn’t forward price anything.”
In years when he has contracted the two crops, his options are to either take the price of the day and schedule delivery later, or set a target price for specific months. “With the target price, you can pick a price for some or all of your crop in a certain month and if the price hits that target that month, the sale is triggered automatically,” says McBain. “If it doesn’t hit the price, you can set another target price for another month.”
Another option he has used is the basis contract, where he looks at the basis (the difference between a quoted cash price of a particular commodity and a futures contract price for the same commodity) and he can lock in an amount of crop, at a specific basis price, for a given month.
McBain also takes out marketing contracts on export timothy hay. Working with a local hay processor and broker, hay is graded (usually for export to Japan) after it is baled and in the shed. The broker then offers a marketing plan to move “X” amount of hay, in a certain month, at “X” price.
DARWIN CLAEYS CYPRESS RIVER, MAN.
Even, or perhaps especially, as a smaller producer, Darwin Claeys says it is important for him to use all the marketing tools he can to sell his crop every year. Claeys, who runs a mixed farming operation about an hour southeast of Brandon, uses a number of futures contracting options to market canola, malt barley, wheat, oats and flax.
He studies the market as much as he can himself, but this past year he also subscribed to the services of the Winnipeg-based Ag-Chieve marketing consultants. He still comes up with his own marketing plan, but bounces ideas off an Ag-Chieve advisor, and is also open to any recommendations made by the market analysts. (For more on Ag-Chieve, read the article on page 9.)
‘‘I like to understand marketing as best as I can, but there are so many programs and options it can be confusing,” says Claeys, who crops about 800 acres. “But that’s their job. They are looking at the markets all the time. They are advisors and make recommendations, but I still have to pull the trigger when it comes to deciding whether to act on a price.”
In 2008 and again this fall, Claeys had made use of the canola cash advance program through the Canadian Canola Growers Association and has used the futures market for pricing his crop. Last year he grew Nexera canola varieties with contracts through Viterra and Louis Dreyfus.
He took out contracts before seeding, and then chose the month of delivery which set the basis, but left the futures part open. “That gave me from the time I planted until the time it is delivered to price it,” he says.
Using the futures market, Claeys chose two delivery periods one being February/March and the other being June/July. With those delivery periods he had until the third week of February to price one portion of his crop and then the third week of June to price the other.
I like those times, because that is typically when prices are the best,” he says. “In my case I took out a cash advance of $100,000 in the fall, which covered cash flow needs, and then using the futures market, I had until the next February and June to actually sell the crop. It gave me all winter to look at the price options.”
Claeys didn’t grow Nexera varieties this year and he hadn’t priced any of his 2009 canola when he talked to Grainews in mid-October. He did take out a cash advance that has to be repaid by September 2010, but he will use the futures market to price his crop over the coming months.
He has used a similar system with oats. He went into 2009 with a fairly large carryover of oats from 2008, but he wanted to move those oats so he could empty bins before the new crop was harvested. “But you don’t want to be selling these oats when there is harvest pressure or it is a low point in the market,” he says. Based on a recommendation from Ag-Chieve, he worked through an oat buyer Linear Grain in Carman to move the oats off the farm, but that still left plenty of time to wait for a good price.
I have placed the carryover oats on a March basis contract, which means I have chosen my basis, but I haven’t priced it yet,” says Claeys. “I have until the third week of February to actually decide on a price, but if I chose to I can roll it over to a May basis, or if I decide then, even to a July basis. I can actually roll it over three times before I have to actually price it.”
MATT WALLINGTON TISDALE, SASK.
The Wallington family follows a classically recommended strategy of pricing their crops in thirds. About one third of their crop is pre-priced through deferred delivery contracts early in the year, another third is usually marketed off the combine or in early winter leading up to the New Year, and the last third is marketed through the February/March time frame.
‘‘Our main interest with pre-pricing the first third is to take a profitable position,” says Matt Wallington, who along with his father Lionel and grandfather Al, and respective families, crop about 5,500 acres near Tisdale, Sask.
Usually they try to have the first third of the crop pre-priced by May or June of the year it is grown. But in using the Internet and daily market reports they are always watching for market opportunities.
Matt marketed part of the 2009 crop earlier than usual. Seeing a good pricing opportunity, he locked about 100 tonnes of their 2009 canola crop into a deferred delivery contract in March of 2008, priced for delivery in September 2009.
Their canola is usually marketed to the Bunge processing plant at nearby Nipawin or the Viterra elevator “depending on who has the better basis,” says Wallington.
They pre-price about 30 to 40 per cent of their oats, usually to the Viterra elevator, while peas will either go to Viterra or Walker Seeds. Most often with hard red spring wheat, they will use either the fixed price option or the basis option offered by the Canadian Wheat Board.
“We have a marketing plan, but you have to be flexible and take opportunities as they come along.”
Lee Hart is a field editor for Grainews out of Calgary. Contact him at 403-592-1964 or by email at [email protected]