Quality ranges pose marketing challenge

Most problems in east | Farmers fear missing or exceeding base minimums on quality and are avoiding forward pricing

PELICAN LAKE, Man. — The crops around this area south of Brandon look rough and patchy, with healthy bits neighboured by stunted crops and with plants showing heads ranging from ripening to immature.

Winter wheat crops have a lot of disease, and everywhere there are crop holes where water sat and drowned the plants.

But a bit east of here the crops looked great, with no signs of moisture stress and good yields and quality likely.

That differing situation within the same region will make for complicated dynamics this fall and winter as farmers find their crops caught in local micro marketing environments that might be much different from overall prairie conditions.

Discounts could be heavy in areas with lots of damaged crops as a glut heads to the elevator.

However, high quality crops in those areas could find nice premiums if local supplies are short.

Marketing advisers say farmers will have to monitor elevators and delivery points to find the best match of mixed-quality crops and buyers.

“When push comes to shove, knowing what you have is going to be pretty important,” said Brennan Turner, owner of the FarmLead online marketplace.

“You could be taking off a wide variety of qualities from one field.”

There are always pockets of poor crop and areas of high quality grain on the Prairies, but this year has an exceptionally large area where crops were badly damaged by the late June rain storm that stretched from Melville, Sask., to central Manitoba.

It creates a zone hundreds of kilometres long in which many poor quality crops will be heading toward the same elevators.

However, a high quality crop is likely to be produced on the western Prairies, where good conditions and development prevail. As a result, very different marketing conditions will exist there.

Brenda Tjaden Lepp, lead analyst for FarmLink Marketing, said the mixed conditions in many fields and across most farms in the rain-damaged area is prompting farmers to pull back from forward pricing, especially with wheat.

Most elevator contracts for wheat define a number of specifications as the base grade and protein of the delivered crop, which creates a challenge for farmers who aren’t sure what they have.

Not only are farmers unsure they will get the grade they contracted for, but they are also unsure how much the discount or premium will be if they miss or exceed the base minimums.

It’s prompting some farmers to avoid even great special offers, such as $6 per bushel for No. 1, 13.5 protein wheat recently offered in Manitoba.

“If some (bad weather events happen between now and harvest) and you end up with a No. 3 or a feed, and so does everybody else in the area, then the discount from that base price is going to be pretty wide,” said Tjaden Lepp.

On the other hand, a farmer who locks in low quality specifications but produces a higher quality crop, might not be able to receive any premium, especially if lots of local growers receive the same good fortune.

Farmers not only have to deal with their own range of qualities on their fields but also with farmers’ situations across their local area.

“It’s the biggest deal when it comes to wheat,” said Tjaden Lepp.

“Until you see what the quality profile is of the overall wheat crop, it’s hard to tell what the spreads are going to do.”

Premiums and discounts are likely to vary elevator to elevator and point to point, depending on extremely local conditions.

“What that looks like to the farmer is: real confusing,” she said.

CWB analysts, after touring the major crop production regions of Western Canada, have concluded that a better-than-average prairie yield is coming.

Turner said that means some farmers might be able to benefit from shipping grain from one region to the next, either good to bad or bad to good.

“There might be some opportunities to deliver to those areas where they don’t have the higher quality,” said Turner.

However, he expects farmers to be leery about pricing much in the next couple of weeks because so many are not confident they know the quality of the crop growing in their fields.

“Guys are more reluctant to sell,” said Turner.

“It’s a quality issue. (They’re saying), ‘I won’t sell it until I have it in the bin and know what I have.’ ”

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