Caution Advised on Forward Contracting

As tempting as it may be with crop prices as strong as they area, farmers need to tread carefully when forward selling in the current inflationary environment, according to Steve Kell.

Kell, who farms in Simcoe County and also handles grain merchandising for Kell Grain, said in a virtual presentation at the Ontario Agricultural Conference earlier this month it can be a mistake for farmers to sell too far out, when it is near impossible to know where crop and input prices are headed.

“This is a pretty honest comment coming from a guy who’s made his living for 25 or 30 years by getting farmers to forward contract grain, but I would be really careful about sticking my neck out into 2023,” he said. “Yes, there are plenty of elevators and end users that have bids for 2023, but if inflation continues at this pace, we have no idea what our costs are.”

Back in the summer of 2020, for example, Kell said it probably seemed like a good business decision for Ontario producers to forward contract Soft Red Winter wheat for harvest in 2022 at prices of around $8/bu. The problem is that same wheat is now higher priced and fertilizer prices have gone through the roof.

Kell said it is obviously much safer to forward contract for 2022, simply because most farmers by now have a good handle on what their costs are going to be and how prices are going to look. The price of fuel for this year’s harvest might be more difficult to pin down, but by and large the other factors in the profit mix are known.

That is simply not the case looking out into 2023, he said.

“Be really careful about getting too far out over the handlebars when you don’t know how high prices are going to go with inflation, and you have even less control over how high your costs are goin