Old crop-new crop spreads make for pricing challenge

New crop pricing is going to be one of those things that cause farmers a lot of anxiety and regret this year.

The anxiety comes from that eternal situation of not knowing what the future will bring. In an atmosphere of historically high old-crop prices and new-crop prices holding fat premiums to long-term averages, deciding whether to hold back from pricing because of the upside potential or to snatch prices now isn’t easy. Some years, when markets are low or flat, it doesn’t seem like a big deal.

That’s not the case this year. The rally since late summer has been incredible. Some think it’ll last years. Others think it’s likely to subside soon.

Fall canola prices are a lot weaker than this summer’s old crop prices. There’s a $160 per tonne spread in futures prices.

That’s a bitter old crop-new crop discount for some to swallow. The commodity market rally is still strong. Canola stocks will be tight in 2021-22 regardless of how the crop works out.

There’s a good chance new crop prices will march higher toward old-crop values if the rally remains in place into the spring and summer.

There’s also a chance the rally will break and leave new crop prices to weaken toward the $520 per tonne level at which canola seems happy. That’s the level at which canola has topped out during the last five years, before this rally.

In the real world of crop marketing, farmers have more challenging choices than textbook marketing plans lay out.

What contracts are available? What are the conditions?

It’s tough with pulses and special crops. Those contracts and crop can be pretty risky to base assumptions upon.

Grain companies offer many flavours of contract for the main crops. Futures or basis can be pegged, as well as automatic trigger levels and other customizations that should fit what most farmers feel comfortable.

Others just like cash contracts, which make everything easy.

Many farmers still don’t pre-price anything until the crop is growing in the field. It’s just not something they do.

That’s changing a bit these days, with lenders often pressuring producers to lock in their cash flow needs, but there is still a great reluctance among many out there to pull the trigger on future prices. In years like this, those who priced old crop early in the fall saw lots of upside potential left on the table, and that always suppresses pricing for a while. There’s that terrible “fear of missing out,” and hearing from other farmers who say they sold at the top, whenever that will be.

As the crop-growing season approaches, farmers will spend less and less time thinking about the markets and more and more about the concrete actions they’ll have to undertake in the fields and in the shed.

That might be a relief from constantly having to wonder about what to price, when and how.

It’s been an exciting market this winter, but the choices it has left growers haven’t been easy.

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