Special crops producers are stumbling into the 2006-07 crop year with no new-crop contracts to guide them through their seeding decisions.
“Without having a price discovery mechanism for grains, you’re planting blind,” said Larry Weber, a broker with Weber Commodities Ltd.
With the exception of a few small-sized chickpea and mustard contracts, special crops processors and exporters have been reluctant to dangle new-crop contract prices.
“In 2000, you could walk up and down the Crop Production Show (in Saskatoon) and get outbid in five different aisles. This year you walked up and down and there wasn’t any,” said Weber.
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When contracts are available, many farmers will typically sign up five to 10 bushels per acre in order to lock in cash flow straight off the combine.
Weber surmised that with growers now seeding nearly 6.5 million acres of special crops, the trade no longer needs to secure acreage with farmers well in advance of harvest.
“When new-crop contracts were hot, everybody was trying to build the business,” he said.
These days traders feel safe in the knowledge that growers intend to seed 3.5 million acres of peas this spring and carry over 600,000 tonnes of lentils from the 2005-06 crop.
“There is no incentive, without a weather scare, to go out and secure acreage,” said Weber.
It’s a sign that the industry has matured to the point where importers and exporters are comfortable with the quantities of special crops being produced.
“The downside to that is we’ve got no real price discovery mechanism out there to know what your product is worth before you go seeding.”
That conundrum is adding tension to an already stressful environment of low commodity prices and high input costs, said Dean Corbett, chair of Saskatchewan Pulse Growers.
Farmers no longer have a mechanism for sharing the risk of planting costly pulses.
“The lentils and peas are pretty expensive crops to put in and you have basically no damn idea where the price is going to be,” said Corbett. “You may see seven-cent lentils again and that sure as hell doesn’t pencil in.”
Avoid repeat scenario
Corbett thinks the lack of new special crop contracts is a knee-jerk reaction by some processors who got burned in the past when they offered high-priced contracts only to watch prices fall.
Steve Foster, special crops trader with Saskatchewan Wheat Pool and president of the Canadian Special Crops Association, said there are a couple of factors at play. Commodity prices are so low that many growers wouldn’t sign contracts even if they were offered. And projected production and carryout levels are so high that importers are playing the wait-and-see game.
“It’s very difficult to get the end-use customers to commit to anything because there is an oversupply of production out there,” said Foster.
That is the unfortunate reality for crops like peas, lentils and canaryseed.
“I think what’s going to happen is you’re going to see a lot more contracting done this year off the combine.”
But Foster said that is not the case for all special crops. He trades mustard and there has been plenty of early-season business with that crop.
