Rob Brunel has a rotten choice to make.
Does he lock in today’s crop prices on his near-dated basis contracts, or does he wait the few days remaining in the hope that markets will rebound instead of plunging lower?
On Oct. 6, as the pace of collapsing crop prices increased, the farmer from Ste. Rose, Man., was ruefully laughing about his predicament.
“It’s really rolling the dice either way, more than it ever has before,” he said.
“It’s quite frustrating.”
Farm marketing adviser Brenda Tjaden Lepp said many farmers are caught on the horns of this dilemma, not knowing whether to sell now or hold on to see what comes.
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“They’re like deer caught in the headlights,” she said after finishing a conference call with farmer clients Oct. 6. “I think they’re finding it hard not to panic.”
On Oct. 6, as the Toronto and New York stock exchanges joined the rout suffered by European and Asian markets during the night – with the TSX suffering the biggest percentage losses – agricultural commodities swooned at the Chicago Board of Trade.
Prices have been falling since early July, but the Oct. 6 selloff was the worst day yet, dragging Chicago wheat to $5.98 US per bushel, corn to $4.24 and soybeans to $9.22 at the close. In early July, corn had reached almost $8, soybeans reached beyond $16 and wheat hit over $12.50.
On Oct. 6, canola fell at Winnipeg’s commodity exchange to less than $9 Cdn per bushel, after tickling $14 in July.
Tjaden Lepp said the marketing problem is particularly acute now, not just because of the financial crisis but because the big crops farmers harvested mean most of them have a lot left to price.
That’s Brunel’s situation. He locked in what he thought was a good proportion of his crop in mid-summer, but now that harvest is done he realizes only a small percentage of his crop is priced.
“When you look at the size of the crop we got, we ended up having very little of it contracted,” Brunel said.
“The good thing is that our bins are full, but the question is, what price are we going to get?”
That’s the billion dollar question that no one can answer. Is this a temporary agricultural commodity slump caused by the financial crisis that will soon right itself, or is this the beginning of a deflationary spiral, in which commodity prices will slump for a long time?
Mike Krueger, a marketing adviser from Fargo, North Dakota, said he urged farmers to sell their wheat in August, and most of his clients have sold about half their corn and soybeans.
For the rest, he’s advising farmers to shut the bins and wait out the tempest.
“We’re not running after this market to try to sell on the collapse,” he said.
“It’s October. There’s all kinds of time for this market to come back.”
Tjaden Lepp is also confident in the eventual recovery of crop markets, although she is more cautious.
“In the long term we’ll be OK. But is the long term six or eight months, or in 10 years, after a depression?”
Brunel said he plans to stick to the plan he laid out months ago and put his faith in the market, although he knows that’s a risk.
“We still have a marketing plan. I still expect to see a rally. But when lines of support have been broken all along since July, it makes me wonder at what point does this whole meltdown in the marketplace end?”
