Sometimes you get what you asked for.
And maybe what you need.
But can you bring yourself to take it?
That’s the situation facing growers who take hedging seriously.
Crop futures prices presently offer growers much better margins than just a few weeks ago, and a lot of farmers want to lock in at least a portion of the crop they’ll soon seed.
For a while this winter it looked like prices were going down the toilet, and farmers who hadn’t priced were singing the blues.
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But then futures started rallying for spring wheat at the end of January and for canola in mid-February. As of March 31, new crop futures for each are up by more than $1 per bushel from the winter lows.
That provides a much-needed opportunity to price new crop right before seeding.
Farmers and marketers always talk during the winter about waiting for a rally to price crops.
With such a sharp selloff from harvest to early 2014, many farmers were pinning all their hopes on a late winter rally so that they could get back some of the profitability they’d seen evaporate.
Now could be the time to price both old and new crop.
That was the message I got when calling advisers this week.
“I think you’re crazy (if you’re) not taking advantage of this kind of move,” said Austin Damiani of Frontier Futures in Minneapolis, whose view was echoed by other advisers.
None said today’s prices aren’t justified. The crisis and disruption in the Black Sea region, dryness in the same area, drought in the U.S. hard red winter wheat area and surprisingly strong Chinese soybean consumption have all supported the rally.
But if things mellow out between Russia and Ukraine, if that area gets some rain and if the U.S. southern plains get some too, then most of the recent rally could evaporate.
Rain was forecast for the U.S. dry southern Plains this week.
I had a chance in early February while covering CropConnect in Winnipeg to chat with David Derwin of P.I. Financial.
In December, when November 2014 canola futures were still higher than $500 per tonne, Derwin had been recommending that farmers buy new crop puts.
By February, however, the futures price had fallen to about $440. Even at that level, he thought farmers could benefit from taking on some coverage, although he hoped a winter rally would offer more palatable prices and another chance.
“Instead of thinking about prices being very, very low (compared to some recent years) and what it’s going to mean, it’s more, ‘let’s get some protection on the books so that a really weak canola price doesn’t turn into a disastrously weak price,’ ” said Derwin. “It’s something we have control over.”
Now that the hoped-for, yearned-for late winter rally has come, it feels much better to price new crop.
But can you bring yourself to do it?
