Conventional wisdom doesn’t always pan out. This year, decisions that looked sound might have cost farmers a lot of money.
Conventional wisdom says lock in profitable prices when they’re available. You never go broke locking in a profit, right?
Prices of around 30 cents a pound were available in the spring for fall delivery of top grade large green lentils. Historically, that’s a good price. It’s profitable. How can you go wrong?
Besides, most contracts only price the first 10 bushels (600 pounds) per acre. If the open price ends up a bit higher than the contract price, so what. You still get to sell the overage at the market price.
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As well, these contracts have an Act of God clause in case there’s a crop failure. What can possibly go wrong?
As it turns out, large green lentil prices are 40 to 43 cents a lb. this fall. That 30 cent contract that looked good in the spring has generated $60 to $80 an acre less than if you hadn’t contracted. The situation is similar on red lentils.
What’s worse, if you had a short crop because of early season drought and/or spring frosts, you might have little or no contract overage to sell.
So producers who followed conventional wisdom aren’t feeling so wise and are now wondering what to do for next year. Contracts are already out for red lentils, and new crop prices of around 29 cents a pound are being quoted.
That remains a good price historically and you have to think lentil acres are going to jump based on the excellent profitability.
So maybe locking in a price is a good strategy. However, those at the losing end of the equation this year may be hard to convince.
I’ve never seen analysis on this, but as a long-time market observer, it’s my impression that fall prices for lentils are higher than contract prices in most years. Of course, the difference is rarely as extreme as this fall.
On other crops, specifically mustard, it’s my impression that contract prices are often higher than the price in the fall. That belief is confirmed by some mustard buyers, but this year is an exception. Yellow mustard has zoomed past 45 cents a lb. and oriental mustard is over 40. Even brown mustard at 32 cents is much more than the spring contract price.
Mustard contracts for 2016 are available at profitable values. They may be a better bet than lentil contracts, but history is a poor premise for predicting the future.
It’s interesting to note that pulse and specialty crop contracts are rarely available so early. Sometimes contracts are available be-fore Christmas, but they often come out in January and sometimes not even then.
Contract prices can change rapidly. Sometimes a contract offer is released and uptake is slow, so the price rises.
Other times, the highest price is with the early contracts, and the offer is either closed or the price is reduced as buyers fill their contracting needs.
Timing of fertilizer purchases is another big money decision. Fertilizer is usually less expensive in late summer and fall than it is in spring, although this conventional wisdom has seen some notable exceptions.
Urea seems to be priced around $540 a tonne, down quite a bit from the spring. Phosphate is stubbornly high at around $800 a tonne. Where will they go from here?
Polish your crystal ball.
