Now is the time when the profitability pencils get seriously sharpened.
Many farmers have been looking at 2016-17 prices since harvest, but it’s only after Jan. 1 that the intense crop-versus-crop comparisons start being made, not only by individual farmers but also by farm management experts.
A particularly good outfit for calculating crop profitability is Manitoba Agriculture’s farm management crew, and I expect to begin hearing its crop-versus-crop comparison’s this week, beginning at St. Jean Farm Days Jan. 6-7 and continuing through Manitoba Ag Days Jan. 19-21.
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Planning guides that provide crop by crop budgets help growers decide which crops to include in their rotations but the next job is to try to use marketing tools to reduce or eliminate price risk.
In years of strong markets it is pleasant to project profitability based on new crop futures prices. Fat profits are sitting there waiting to be locked in or gambled with.
That is not the situation now as markets are weak and profitability is thin for most crops. Hedging in 2016 is likely to be about protecting modest profits and break-evens rather than getting the most of a roaring bull market.
There are always chances for rallies, and farmers can set themselves up for those rallies.
The good news is that today’s farmers are far more prepared to use marketing tools than were past generations.
Farmers no longer need be devastated by an unexpected drop in crop prices. Most know how to hedge at least some of their exposure, even if it simply means they know how to call a broker or marketer to do some of their forward pricing and insuring.
I saw this in November when I was reporting for the final story of my series on the professionalization of farming and farm advising.
I visited Eldon Klippenstein’s farm outside Altona, Man.
When I walked in his office door, he was chatting with a broker who was making 2016-17 corn crop hedges. Klippenstein, who knows his costs of production, could see profitable prices and wanted to protect them while leaving some upside potential, which he did with the advice of a marketing company and a broker with a different company.
He knew what result he wanted and understood the financial risk for his farm of having too much 2016-17 crop unpriced or unprotected. He also knew who to call to get that job done.
To me, that’s what prepares today’s farmers to better face down times than their parents and grandparents. They know what they need to do and know how to go about doing it.
The commodity and crop outlooks I see don’t offer a lot of cheery views about 2016.
However, I think farmers can feel good that they have knowledge of and access to experts and marketing tools so that they need not be passive victims of everything that happens in this year’s markets.
