Lots of farmers are dealing with the uncomfortable consequences of good luck: they’ve got more crop than they expected, but not enough bins for it.
So they’re left with an unpleasant choice: dump it on the ground to drop a few grades, or dump it in the elevator and take a weak bid.
Farm marketing advisers say most of these problems can be avoided, but maybe not for this year.
Some October grain prices are 30 to 50 cents per bushel higher than prices for immediate delivery, which farm marketing adviser Brenda Tjaden Lepp calls “a pretty big carry.”
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“If you want to know what it costs you to dump your grain down the elevator, rather than planning for it, there it is in that price spread,” said Tjaden Lepp of FarmLink Marketing Solutions.
She, like most advisers, is exasperated by the number of farmers who do not make marketing plans, and then are forced to sell when ever bills come due. If that happens around harvest, farmers are selling into a market where no elevator company feels compelled to fight for the farmer’s product.
If selling off the combine is caused by a lack of bin space, that’s a problem that can be avoided.
“We do storage plans. What do you have? What are the yields of the crops in your field?” said Tjaden Lepp.
The farmer’s overall bin space is reduced by the number of crops he grows, because it is unlikely each crop will yield exactly enough to fill a bin, so some bin space will be wasted.
“If we see you’ve got 50,000 bushels that’s going to be on the ground or going down the pit, we can decide ahead of time what do we want to do with that.”
If a farmer realizes he’ll need to make some sales at harvest time, he can take advantage of a summer rally to lock in a harvest price, rather than wait for the deluge of harvest deliveries to pressure prices.
Adviser Errol Anderson of Pro Market Communications said a farmer should never be selling grain because he needs money today. Every sale should be planned.
“Cash flow selling is marketing by default,” said Anderson.
“It’s not good marketing. It’s poor marketing.”
Anderson said some farmers sign grain contracts at the elevator at harvest that gives them a form of a call option, so they can take advantage of a winter rally. But the cost at about $40 per tonne is “incredibly expensive.”
Anderson said farmers can use calls to replace their crop, but the entry point for those should be based on better timing than the date of delivery, and they can be bought cheaper through brokers than through grain companies.
He also doesn’t think the basic cash sales decision should be made by financial necessity. The price at delivery should have been set during a summer rally and the call decision made separately.
This seldom happens.
“The bulk of growers don’t do anything and get caught up in the bull talk furor in the coffee shop (during a summer rally) and don’t price anything. That’s what hurts them,” he said.
“It happens year after year after year.”
But while grain buyers may have farmers over a barrel at harvest time, farmers won’t necessarily do as badly as they expect, said adviser John Duvenaud.
Many people assume prices will be worst at harvest because there are thousands of farmers selling and few buyers since the elevators are flooded.
But in Duvenaud’s view, which differs from Tjaden Lepp and Anderson, grain markets are often strongest at harvest, and holding onto crop is no more likely to gain a better price.
“If you go back through the records year by year, if you had only one strategy for marketing, it would be to sell everything off the combine,” said Duvenaud.
“In general, prices go down through the year.”
So a farmer with high quality grain may not be received with open arms at the elevator, but he might walk away with what might be one of the best prices of the year.
“It’s not a bad strategy at all.”
But not all grain’s the same, and Duvenaud said farmers should avoid taking quality-challenged grain to the elevator when the grain companies are able to pick and choose.
Right now a lot of farmers have wheat with wheat midge damage. Much of that could be downgraded to a No. 3, which is about a 50 cents per bushel discount to No. 2.
“Right now no elevator is likely to give you a break to try to get you to bring your grain in, because it’s pouring in, but wait until December or January and this wheat’s going to look pretty good,” said Duvenaud.
“By the time all the smoke clears, pretty much all that No. 3 wheat will end up as a 2 anyway.”
While Duvenaud doesn’t fear the harvest market as much as Anderson and Tjaden Lepp do, he agrees with them that marketing decisions shouldn’t be made because a farmer has run out of bin space, has to pay a bill or isn’t sure what to do.
The advisers agree on the need to plan.
