Growers need to hone marketing skills to get best price

Farmers have eased into the post-Canadian Wheat Board world far more easily than some warned and others feared.

But farmers still have a lot to learn about this evolving market, be-cause even the best and brightest marketers are still working through the complications of western Canadian wheat and barley markets.

If farmers don’t boost their understanding, they will be stuck in the situation of having to accept (or be suspicious of) grain companies’ and marketers’ prices and opinions.

Wheat is a much more complicated market than canola or pulses, with elements many farmers don’t yet grasp.

That’s a conclusion that struck me after meeting with two western Canadian marketing and hedging experts and seeing how dynamically they’re working together to form ways of pricing grain that creates a program that makes sense to farmers.

“It’s being on top of it,” noted David Derwin, a portfolio manager and derivatives specialist with P.I. Financial in Winnipeg, when we met the other day.

Prairie pricing and basis expert John De Pape agreed.

“There’s an opportunity to do better,” said De Pape.

Although each is an expert in his own area and well-versed in the other parts of Prairie grain marketing, they’ve been working together to pool skills and develop better marketing programs.

That collaboration strikes me as an intelligent approach and something farmers could learn from. Nobody should assume they are smart enough to have all the angles covered, especially in something as new and fast-evolving as the prairie wheat and barley market.

U.S. farmers have decades of experience with the complexities of the wheat market, but many of those complexities did not exist in Canada during the decades of the CWB monopoly, with the board taking care of (or concealing) many of the signals that U.S. growers have learned to read and follow.

That leaves Canadian farmers playing catch-up with a number of factors:

  • interpreting basis signals
  • understanding carry
  • comprehending the signals that spreads between qualities, crops and locations are sending
  • Grasping how to use the wide array of pricing choices now available, from futures and options to basis and flat price contracts.

Many farmers are used to letting the grain companies handle these complexities for them. Lots prefer to get a flat price from the elevator and leave all the complications to the grain company to manage.

Others have embraced the blossoming of marketing advisory services in the post-CWB dawn, including people like Derwin and De Pape, growing companies like Agri-Trend and FarmLink, and a host of local and regional advisers.

But letting the grain company handle all the variables of a flat price contract, or hiring an adviser to follow the markets and provide hedging and selling recommendations doesn’t remove the need for the farmer to understand all the components they are analyzing.

Of course grain companies like offering flat prices. They can lock in comfortable margins within that composite price. But how does a farmer know whether that is a fat or thin margin?

And of course advisers make informed recommendations. But how do you know they’re any good at what they’re doing? Saying you’re an expert doesn’t necessarily mean you are actually good, but how is a farmer to know?

Catching up on all the concepts underlying the grain markets is the key, and farmers shouldn’t think they don’t need to do that just because they have become comfortable with the various ways of pricing that have evolved in the past five years.

Derwin and De Pape both said they’d like their clients to be more informed, because then they can more easily explain why they’re making their recommendations.

There are probably marketers out there who don’t really want that, because with understanding comes a bigger possibility for questioning or challenging recommendations.

But if farmers want to get as much out of the market as they can, understanding the market is essential, even if they are eventually going to accept what the grain company offers or adviser recommends.

Informed consent is infinitely preferable to blind faith or resignation.

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