Doing nothing may be more about procrastination than about strategy, but it was definitely the most successful marketing plan last year.
Producers who did not contract and held on to their canola or wheat cashed in on the record prices this spring and had a good tale to tell on coffee row.
However, one market analyst thinks producers should fight the temptation to do nothing with their new crop.
“The farmer always wants to have the bragging rights in the coffee shop … ‘I sold (barley) for $5.50 per bushel, you only got $5.25,’ ” said Doug Chambers of Quality Grain Marketing in Calgary.
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Chambers’ advice to farmers is to let go of the quest to hit the potential market peak in December or February and take advantage of current strong prices.
“What I’ve been telling guys is at the levels they can get out there for grain today, to (contract) a small portion of the new crop is not a mistake,” he said. “For example, using Alberta numbers for feed barley, we can easily get $5 (per bu.) …. If you go out and sell 25 percent of your crop at that (price), you’ve never had that opportunity before.”
While that sounds like solid advice, many farmers are content for now to watch the market action, said Ian Wishart, president of the Keystone Agricultural Producers.
“Lately, the feeling is to sit on the sidelines,” said Wishart. “First off, make sure the crop is looking good …. Then we’ll just pick our times over the summer (to price crop), because it does appear it will be a weather market over the summer, maybe more so than most years.”
The weather this spring may also be a factor in delaying marketing plans because cool temperatures have slowed crop development in most of Western Canada.
“Some of them are locking in ahead of time, but only if it has an act of God clause in it,” said Art Hollinger, manager of Precision Ag in Carnduff, Sask., referring to contracts for flax and peas.
For other crops like canola, Hollinger said farmers around Carnduff in southeastern Saskatchewan are reluctant to put pen to paper, promising to deliver a crop.
“They’re just being awful cautious this year, and I don’t blame them,” said Hollinger, an agent for Rayglen Commodities of Saskatoon, as part of his role with Precision Ag in Carnduff. “A lot of guys said … if it was a normal year, they’d be locking in. The prices are good, but …”
So far the strategy of wait and see is working for most producers, said Ken Ball, a broker with Union Securities in Winnipeg.
“Generally, growers have resigned themselves to doing just light pricing activity,” said Ball. “Fortunately, the U.S. weather situation has underpinned the markets enough to make that a good strategy.”
Producers are definitely not using the futures markets to offset their risk.
Looking at canola as an example, market volatility is not as extreme as it was earlier in 2008, but costs to finance hedges are significantly higher than recent years.
“For me, my hedging business is down 70, 80 percent from a normal year,” Ball said. “If you think of a large farmer who might have 10, 30 (canola) contracts of hedging on the books, that might have been (in the past) a margin requirement of $15,000, $25,000. Now it’s probably closer to $150,000, $200,000 to maintain that same position.”
