Crop prices have fallen - back to marketing basics

Marketing strategies to consider now that prices are off their highs.

“As the growing season progresses into August and crops enter the filling stage of production, crop conditions on the Canadian Prairies and in the major growing areas of the U.S. are generally good, and average or better yields are expected,” says Neil Blue, provincial crops market analyst with Alberta Agriculture, Forestry and Rural Economic Development.

Prices have fallen from the highs of April and May. What are the strategies to consider now that prices are off their highs?

“As crop growth advances during the growing season, depending on crop yield potential, one’s estimated costs per unit of production, level of forward pricing completed to date, and one’s approach to risk-taking, consider pricing more crop using your individual target prices and by choosing from various pricing alternatives available. Crop buyers offer several types of contracts from which to choose. Most contracts with a crop buyer lock in a delivery commitment. That can be a good plan if there is need to deliver some crop during the harvest period, either for storage or cash flow reasons.”

The use of futures and options also have pricing considerations and offer the possible advantage of locking in a futures price, or minimum futures prices, without the commitment of physical delivery. A limitation is that the only remaining Canadian dollar denominated futures is for canola. U.S. dollar denominated futures are available for the wheats, oats, corn, soybeans and soybean products.

An alternative to meeting at least some cash flow needs is to use the Advance Payments Program. Several organizations in Canada administer the program on behalf of the federal government. The first portion of the loan has no interest charge.

“The general recommendation is that no more than 50% of expected crop should be priced prior to harvest, after which the volume and quality is better known,” explains Blue.

However, Blue points out there are times when the 50% level could be exceeded, especially if prices offer income opportunities far exceeding one’s costs of production, and either a deferred delivery contract includes an ‘escape clause’ to protect against harmful effects of a crop production shortfall, or options on futures are used, which avoids a delivery commitment.

“Producers should either follow the markets and be able to recognize market opportunities as they arise, or subscribe to a service that does so. Following harvest, consider using the Harvest Sample Program of the Canadian Grain Commission to obtain an unbiased estimate of base crop grades. Those grades can be a very useful reference in dealing with buyers.

"Then, continue to shop the market for the best available farm gate prices, again considering profit levels, market outlook, and cash flow needs. Finally, as time passes through the crop year, ensure safe storage of remaining crop to maintain grade characteristics,” says Blue