New crop production contracts early this year

Maybe it’s the sky high price of canola. Maybe it’s the tightening stocks-to-use ratio on many commodities. Maybe it’s all the uncertainty in a pandemic-stricken world. Whatever the reasons, new crop production contracts are more widely available than usual for this time of year and some are worthy of consideration.

Saskatoon’s Crop Production Show in early January has often been the time frame for companies launching new crop offerings. The 2021 version of the show is a COVID casualty so that interaction between farmers and buyers has been lost.

As we head into Christmas, new crop contracts have been available for some time on flax, all types of mustard and feed barley. Now, postings are showing up for red lentils, yellow peas and canaryseed.

In Saskatchewan, depending upon your location, new crop feed barley can be locked in for as high as $4.50 a bushel picked up at the farm. These are deferred delivery contracts, meaning you still have an obligation to deliver even if you have a crop failure.

On new crop flax, contracts with an act of God clause have been readily available at around $14 per bu. f.o.b. the farm. With brown flax selling at $18 or more a bu., the new crop price may seem like a letdown, but it’s still an attractive offering relative to historical values.

New crop contract offerings are the norm for mustard. Companies and end users like to have some of their supply assured. When farmers see canola in the $14 a bu. range, mustard buyers know they need to up their game to assure a supply. Mustard acreage, even in southern Saskatchewan and Alberta, is tiny compared to canola.

It appears some buyers are willing to pay just over 20 cents a pound for new crop red lentils. That seems unlikely to elicit a lot of interest since it’s well below what the market has been paying this fall.

Yellow peas are a similar story. With current prices increasing to well over $9 a bu., a contract price that’s $2 less may not have much appeal.

Of course, contract prices can and do change. Mustard prices have edged upward since the first contract offerings came out. Perhaps there’s more upside potential on red lentils and peas, but that isn’t assured.

It’s always a balancing act between market realities and farmer expectations. The current price of canaryseed at 31 to 32 cents per lb. is the highest in many years. New crop contracts are apparently being offered in the 24 to 25 cents per lb. range. A couple years ago, that would have been exciting, but expectations are now higher.

Some farmers rarely if ever price any crop in advance, believing better prices will almost always be available after harvest.

Production contracts are certainly a double-edged sword. I’ve signed some that I came to regret, but others have been good money makers. If the price is profitable and near the top of the historical range, it’s comforting to have a bit of price certainty.

Most act of God contracts are for only 10 bu. an acre; it’s not as if you’ve priced everything you hope to produce. But it is a starting point that provides some protection in case the market goes sour.

I follow what various market analysts are predicting, but you can’t take that to the bank the way you can a new crop production contract.

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