VANCOUVER – Farmers need to use risk management strategies to deal with today’s price volatility and sky-high input costs, say advisers.
Garry Pike, chief executive officer of Pike Management Group, said the annual fuel bill for a large, 30,0030 acre operation would be $257,587 at today’s prices.
“Anybody want to finance that? That’s what we’re up against in this business,” he told delegates attending the Canada Grains Council semi-annual meeting.
One option is to forward price fuel but he knows of only two companies on the Prairies that will do that – United Farmers of Alberta and Rack Petroleum Ltd. in Biggar, Sask.
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“We’re just not there,” said Pike.
Another way to mitigate risk is by reviewing operational efficiencies to ensure the land base matches the equipment being used. Pike’s clients are already good at that.
“These guys know their costs down to a penny,” he said.
Farmers should also consider renting land in various climatic regions to diversify their crop portfolio and spread out the risk of losing a crop because of bad weather.
Pike Management also offers two in-house risk mitigation services for farmers.
AgStream allows farmers to grow a crop in partnership with outside investors. The producer gets a per acre payment that guarantees him a positive return and investors get a share in the crop.
The Managed Bushels Program provides farmers with professional advice on cash sales and the management of corresponding futures and options tools. Crops are pooled together, allowing producers to take large positions and move in and out of markets.
Pike also suggested the use of variable rate fertilizer technology to enhance yields and decrease costs.
David Rourke, a producer from Minto, Man., who farms 5,000 acres, said a lot of Pike’s suggestions are expensive solutions geared toward big farmers. He offered some ideas for smaller producers.
Rourke said his farm generated an estimated net profit of $168.50 an acre in 2008 because of strong commodity prices. He is penciling in a reduced profit of $6 per acre in 2009 due to falling commodity prices and high input costs.
To avoid dipping into the red ink, many farmers will be using a variety of techniques to reduce fertilizer use such as seeding more pulse crops, increasing summerfallow and planting more oats, flax and winter cereals.
In addition to running a grain farm, Rourke operates a straw-based hog finishing operation, an on-farm ethanol plant and a company developing and distributing grazing corn. He encouraged growers to consider value-adding opportunities to decrease their reliance on the vagaries of traditional grain markets.
