Farmers anxious as prices fall | Larger than expected volumes of grain causing price slump
After the party comes the hangover. And after all the excitement, the regrets.
That’s the marketing situation for many prairie farmers as they deal with big crops they can’t store and prices they don’t like.
“People are familiar with high prices from last year. We’re hearing a lot of people say they won’t price (barley) until it’s at least $4 minimum,” said Jared Seitz of Agfinity, a Spruce Grove, Alberta, grain brokerage business.
“But we’re not in a $5 or $4 market for barley. If you’re truly going to target $5 or $4 barley, you might be hanging on to it for a lot longer than your marketing plan calls for.”
Many prairie farmers have an unexpected marketing problem: they have much more grain to price and move than they expected.
This is partly due to higher than expected yields in most regions. The late spring and cool July didn’t hurt production as expected.
Farmers also held back from pricing new crop because of declining prices for most of the summer.
Now many have piles of grain and pressure to price and move grain to pay the fall bills, leaving them morose as they look at their options.
There’s some anxiety about what it’ll take to sell all the volume.
“There was a roller-coaster ride this harvest with excitement at the end of August with signs of bumper crops, but as we saw the price falling off we started to come down the roller-coaster and the excitement turned into larger disappointment because they had more to lose,” said Seitz.
Analyst Jim Beusekom of Market Place Commodities in Lethbridge said marketing dynamics are a reversal from the 2012 harvest. A year ago, farmers were feeding a scared and aggressive market.
“Then, the farmer could pretty much set a target price higher than what the current price was and before long someone would come along and hit it,” said Beusekom.
“This year, it’s a lot harder to hit target prices. The markets have been running away from your price, not towards it.”
If farmers set target price triggers, the grain could sit unsold until they chop the price to match a declining market. Beusekom said market price orders are often necessary in this climate to move grain.
If farmers want to keep their grain until the harvest pressure is off, they need to have storage if they want any reasonable chance at significantly better prices.
“If you’re just going to be selling in a month from now, why hang on to it?” said Beusekom.
Seitz and Beusekom said grain markets seem to be stabilizing and might be bottoming. The real chances, however, for gains are months from now when attention turns to South American crops and the U.S. spring planting situation.
Problems in those areas could arise, sparking better prices.
To take advantage of those possibilities, which might not arise, farmers will need winter storage and money to cover their cash flow needs while they’re carrying the crop.
Beusekom said farmers who can look beyond lower per bushel prices and storage woes could end up with higher profits than last year, but it’s hard to see that now.
The challenging environment “definitely takes the fun out of it,” said Beusekom.
Seitz said farmers who didn’t get great yields are in a doubly distressing situation, with no mitigation for lower prices and a glutted delivery market.
“You’re the guy or girl who didn’t get invited to the dance,” said Seitz.