Farmers willing to hold onto old crop

The start of a new crop year itself won’t be enough to entice farmers to launch a mass grain exodus from their bins.

“I think that because farming and grain sale revenues have been pretty good for the last decade or so, there’s more people who are willing to wait longer and longer for grain prices to go higher,” says Brennan Turner, president/CEO of FarmLead.

Willing to wait

Growers will be particularly keen on hanging onto high-value wheat, he says. Dry conditions in United States spring wheat producing states continue to support higher prices, Turner points out.

He adds that in eastern Canada, corn and soybean prices are as good as they’ve been in about a year.

Producers are also likely to not sell in cases where there’s a carry in the market and they can be paid more for delivery at a later date, Turner notes.

Crops they’re most willing to bet larger on include durum and flaxseed, which they might resist selling for as long as three or four years, Turner says.

Risks

The obvious risks of holding out so long are not achieving that once-in-a-decade price, as well as reduced cash flow.

“You’re betting all of your grain’s price exposure on hope,” says Turner. “The first rule I learned on Wall Street is that hope is not a risk management process.”

Incremental selling

He instead recommends farmers spread out their price risk, selling in five to 20 per cent increments, depending on the liquidity of a particular crop’s market.

“Canary seed is less liquid than wheat, so selling in big percentages is a stronger strategy.”

Making incremental sales is a better risk management approach than just picking a price at which to sell.

“It’s like playing all of red or black at a craps table instead of a single number,” Turner says.

Spring harvested old crop

Farmers who harvested last year’s crop this spring naturally experienced quality issues, but that doesn’t mean they’re automatically shut out of markets.

Their first step should be to get their grain tested.

“Knowing what you have in terms of quality makes it abundantly easier to understand how valuable your grain really is,” Turner says.

Once that’s determined, shop that grain around to numerous potential buyers to achieve the best possible available price, he urges.

“When you list on FarmLead, that grain literally goes in front of over 450 different, credit-verified grain buying companies.”

Grain selling app

On the FarmLead Marketplace, producers can sell grain already in the bin or forward contract grain that’s yet to be harvested.

Interested growers register for free and post an offer, including information like grain type, quality and location, preferred shipping period, and if and how far they’re willing to truck their grain. Farmers can also add images of their spec sheets and their grain itself.

“There’s no cost to list grain and get into any negotiations. There’s no exposure of anyone’s name until you’re ready to finalize a deal,” Turner says.

In addition to being able to negotiate cash grain, farmers can also negotiate basis for crops that have a futures market related to them, like corn, canola, oats, soybeans and wheat.

Bottom line

Depending on the crop, growers are willing to wait, but it may be worth considering spreading out pricing risks.

Article by: Richard Kamchen