Your Reading List

Your marketing plan and COVID-19

Should farmers change their marketing strategies because of the pandemic or stay the course?

As another year’s crop will soon fill their bins, should farmers change their marketing strategies because of the effects of the COVID-19 pandemic or do they maintain the same course they had planned out for this winter?

Bruce Burnett.
photo: Supplied

“COVID-19 has had some impacts on the markets, but it hasn’t really been that much for grains and oilseeds,” says Bruce Burnett, director of weather and markets for Glacier FarmMedia. “I don’t think there is any need for producers to change their marketing plans this year specifically because of COVID-19.”

Markets for grains and oilseeds will continue to be driven largely by fundamentals of supply and demand, adds Burnett.

Why it matters: COVID-19 adds another degree of uncertainty to the marketplace but experts say the foundation of a solid marketing plan remains the same.

“There are other international factors, whether it’s the pulse, wheat, durum market or canola market, and COVID-19 impacts it from the periphery but isn’t a core problem for any of those markets,” says Burnett.

Related Articles

The prospects for each commodity are different, and there will always be unforeseen events that come along and have an effect, but there will be large global supplies of cereals and it’s up to demand to determine the price signals through this crop year.

“Demand has been strong for cereals, that’s not dropped off, so this is going to be a process of dealing with essentially large harvests in parts of the world, including Canada,” says Burnett.

There’s a very strong demand for oilseeds globally right now and that’s helping to boost canola and soybean prices, despite the fact the United States’ agreement with China on a Phase 1 trade deal appears to be falling apart, says Burnett.

“This goes back to marketing in any environment — the fact that we are seeing strong demand is very important as we move forward in the year with the oilseed market, specifically from China,” says Burnett. “They are buying soybeans from the U.S. because they need the soybeans and South American supplies are out right now.”

Should a solid marketing plan stand up in the face of volatile disruptions?

Yes, it should, says Darren Bond, farm management specialist with Manitoba Agriculture, adding farmers are used to adapting to challenges because of market factors beyond their control, but they should be aware that this year could be a bit different, and be ready to be extra flexible.

Darren Bond.
photo: Supplied

“When we have years with good harvests and have plugged delivery to the elevators, railways and terminals, producers are used to that kind of thing, but the issues around COVID-19 are different and may not have anything to do with how much grain is in the system, so we just want to be planning ahead, because a bit of planning can relieve a lot of stress,” says Bond.

“A marketing strategy is about maximizing profitability and reducing stress, and if you can sleep well at night your marketing plan is working,” says Bond.

How to address challenges due to the COVID effect

If there are any challenges because of COVID-19, what are they likely to be and how should farmers address them?

Bond thinks the two most likely areas where COVID-19 could affect grain farmers over the course of the marketing season is through increased price volatility and potential grain delivery interruptions.

When preparing for price volatility, it’s important for producers to know their costs of production, says Bond.

“What producers should do as they move through harvest and their projections become actuals, is continually update those cost-of-production figures, so they have an idea of where their break-even prices are within the grains they are selling, and from there they can then start to identify pricing points where they can see some profitability on the farm,” he says.

Knowing those price points takes a lot of stress out of the marketing process, says Bond, who adds this might be the year for farmers to be a bit more conservative in their profit expectations.

“There’s nothing wrong with making that sale where there’s profitability; no one ever lost the farm from making a profit,” says Bond. “I think it’s time to be a little more conservative when it comes down to this, and if they can get some profit in the marketplace they should take it.”

Some producers will always hold on to a small amount of their grain to gamble with, and there’s nothing wrong with that, says Bond, but it all depends on the financial situation of each farm business.

“If finances are a bit tight, then this is probably the year for less risk, so it’s important to know where the farm finances are. And if the profitability is there, this may be the year to take it sooner, rather than hoping for something better later,” says Bond.

Plan for delivery disruptions

Livestock producers have already felt the sting of delivery interruptions, with the temporary closure of processing plants due to COVID-19, and it’s something that could potentially happen to grain producers too.

The strategy to cope with delivery issues is for producers to make sure they identify their cash flow requirements and timing ahead of time, which is something they should always be doing anyway, says Bond.

“Identifying how much cash they need and when they need it by can help farmers know when to make their grain sales to generate the cash flow to meet those requirements,” says Bond. “Again, I don’t think this is the time to run things too tight from the sense of selling grain right before they need the cash flow, because an unforeseen interruption could prevent them from delivering the grain when they intended.”

For producers, it’s best to be a couple of months ahead with grain marketing so they have enough time to revise their plans to try and ensure they meet their cash flow requirements if they find they can’t deliver their grain when they had hoped to, says Bond. Alternate plans could include things like speaking to their bankers about short-term financing, or participating in a cash advance program.

“The key to either of these strategies is (farmers) have to know what their cash flow requirements are ahead of time, so they can create the plan and have the time for when things go sideways,” says Bond. “That’s what the whole world has seen with COVID-19 — that plans have been thrown to the wayside, so we need that time to create a new plan B or C if plan A doesn’t happen.”

Keep an eye on yields

As the harvest comes in, Burnett advises producers to keep an eye on what their yields are and maybe adjust their marketing plans to reflect the likelihood of large global supplies.

“Initial yields in Canada have been very good from the harvest, and if a producer’s goals and objectives are to be sold a certain percentage by a particular time in the crop year, with these extra bushels coming in he or she might have to alter their marketing plan a bit based on those, and based on the market prospects going forward,” says Burnett.

“Marketing plans are an evolution where you have an overall plan, but you have to respond to events as you move through the marketing year,” says Burnett. “That’s not going to be any different this year than the last 10 years.”

Do you have enough storage capacity?

Although not directly related to COVID-19, one issue that could affect farmers’ marketing plans this year is some bumper crops are expected across the Prairies, and because delivery of those crops is a 12-month process, many farmers could be facing some tough decisions if they run out of storage capacity on the farm.

Mike Jubinville.
photo: Supplied

“We are likely going to see a quick harvest with big yields and good- quality characteristics, and the trade is going to have to recalibrate its speed of delivery inflow,” says Mike Jubinville, senior market analyst with MarketsFarm PRO.

“When too much is coming in too quickly, grain companies are going to have to hit the circuit breakers, whether that means adjusting flat cash price enough to provide a disincentive to the grower to deliver right now, or provide a carry price premium further out for deferred delivery to incentivize the farmer to delay deliveries.”

Although heading into August bumper crops seemed to be developing throughout most areas — other than in northern Alberta, which remained wet — heat and dryness throughout August came at the wrong time, and yield potential has been curtailed from the early optimistic expectations as cereals’ heads and oilseed pods have not filled as well as hoped, adds Jubinville.

He suggests farmers have a conversation with their grain buyers sooner rather than later to try and get a sense of when buyers might need grain, and then work that into the marketing plan along with consideration of the farm’s cash flow needs and storage capabilities.

“When farmers are engaged in decisions about how much they need to sell, and what and when, it’s reverting back to the basics of price times yield equals margin per acre,” says Jubinville.

“Using the wheat market as an example, if you have a very large wheat crop, maybe you are harvesting 80 bushels per acre plus, and the price in the current environment is not attractive for, say, a No. 1 CWRS 13.5 protein, maybe it’s just over $6 per bushel for midpoint Saskatchewan. You don’t want to sell into that, but because of space management issues you can’t store it all, so something has to move. Though one wants something closer to what has recently been a target, say, at $7 per bushel, that’s not available right now, so one needs to tackle that overage if production comes in higher than expected. The portion of the wheat crop that is beyond what would be a normal yield for you, then maybe selling some of it at that lower price is something you need to do. It may be a large yield times a mediocre price that still, on a net-per-acre basis, might generate a decent return.”

A farmer’s experience

Grain farmer Derek Dery isn’t changing his marketing plan because of the COVID-19 pandemic and its possible impacts over the marketing season ahead, but he is changing his tactics and execution of the plan.

Dery, who farms west of Saskatoon and has also spent the last 10 years providing advice to farm clients in his managing role with FarmLink, says this year, with the knowns and unknowns surrounding COVID-19, he’s taking his own advice and has increased his sensitivity to farm constraints.

Derek Dery.
photo: Supplied

“As an example, we are looking at where we potentially could have some farm finance issues over the next several months, and what I am doing with my farm is extending the time horizon of COVID,” says Dery. “When you extend the time horizon, what does this look like in January and February? What does this look like for seeding time of next year, and for next fall? By extending the time horizon to key thresholds, which are January to March for payment deadlines, April, May and June for seeding and finance deadlines, and then storage and cash flow for August through September of next year, I need to be more sensitive to some of those deadlines and plan those sales a little bit further in advance.”

COVID-19 has increased risk and volatility because of its effect on global economies and no one knows how that could play out in the months ahead, so Dery is looking at trying to build in as much flexibility as he can to make sure he can meet his cash flow needs and maintain profitability on his farm, and he is advising his clients to try and do the same things.

“It’s about asking yourself some critical questions,” says Dery. “Will cash flow be impeded from traditional finance plans and will I need more sales to alleviate these cash flow issues? For example, can I meet with my farm financial account manager or my bank and can we get a financing structure set up and in place in time to meet our growing cash flow issues because many of our clients’ farms are often growing each year, and growing in the requirements of capital they need to farm each year.”

Have that conversation sooner rather than later, advises Dery, because COVID-19 could slow the process.

“The biggest concern I have for my farm is meeting with my account managers on a timely basis,” says Dery. “If we want to set up a financing structure for our farm for seeding time of next year, it typically might take 30 days to turn that around. Well, how does that impact my farm if it’s going to take 90 days to turn that around because my account representative is working from home? All these external things don’t directly relate to the marketing strategy but the tactics of that marketing strategy get adjusted because you have to be a bit more defensive.”

If farmers can’t get financing lined up in a timely manner, timing of grain sales becomes even more critical. “You don’t want to miss marketing opportunities within those marketing windows throughout the year, but if I have an April/May contract, is that grain going to move in April/May? Where do we need to adjust our tactics on that marketing plan? That will change on every farm because some have more cash flow or more storage ability to ride things out. But for most farms that I work with, and my own farm, we are taking a hard look at the January to March deadlines and seeding for next year.”

It is possible to be overly sensitive with your tactics though, says Dery. “We don’t want to disregard the marketing strategy for new crops that might be a bit more friendly, like canola at the moment, where we don’t want to sell it all today,” he says. “It’s about balancing when is that deadline for me as the decision maker for my farm to make that sale, so to me it’s about adding an extra layer of diligence to executing the marketing strategy.”

About the author

Contributor

Angela Lovell

Angela Lovell is a freelance writer based in Manitou, Manitoba. Visit her website at http://alovell.ca or follow her on Twitter @angelalovell10.

Comments

explore

Stories from our other publications