CLIFFORD — Clifford-area grain marketer Dan Renwick has his idea of a smart farmer: one who “took some of the crop to Vegas, but not all of it.”
It seems there’s no shortage of farmers taking some of their crop to Vegas. There are also many producers aggressively forward contracting this year.
Of course, remarkably high crop prices make that easier. By March 3 the cash price for corn at Great Lakes Grains had hit $6.7/bushel and soybeans had hit $17.5/bu. Great Lakes Grains manager Don Kabbes said crop marketing is up substantially for this time of year. By the beginning of March they’ve usually bought 10 per cent of their grain from the 2021 crop. They were up to 25 per cent by March 1, he said.
There was a certain amount of knee-jerk reaction when prices started climbing, he said. But on the whole grain marketing these days is a lot more methodical. Producers started to back off on selling grain to avoid putting all their eggs in one basket, even if it’s a profitable one, Kabbes said. Historically there have been good opportunities for marketing crop between the beginning of spring and when farmers are in the tractor seat taking it off.
That said, he was concerned that signs of continuing strength in the grain markets could lead to some complacency when it comes to marketing. When farmers are waking up to new highs everyday, that can build the temptation to just hold off on marketing crop. The problem is when the market finally peaks. “High prices will cure high prices,” he said. “It’s just a question of when.”
And beating the market is an increasingly difficult proposition. Global commodity networks and lightspeed information exchanges make it much more difficult for a producer to beat the market, hitting the high and getting out before it drops. Said Kabbes: “You’ll seldom be out in front of it.”
But there are definitely some producers out there still rolling the dice on hitting those highs. Ondrejicka Elevators branch manager John Geudens said he knows producers hanging onto 2020 corn, holding out for $7.50/bushel or even $8/bushel. In an even more extreme example, grain merchandiser Ron Van Der Burgt, of VDB Grains Ltd. at Mitchell, said he knows of a producer holding onto 10,000 bushels of Identity-Protected soybeans, holding out for $18/bushel. With a $3 premium for IP beans, that’s $21 a bushel, or $210,000 for the crop. If he hits it, “he’s laughing,” Burgt said. But that’s a big if.
Disciplined marketing plans are only necessary because people get tempted to chase the highs. “We all only want the price we could’ve had yesterday,” and that’s where producers run into trouble, said Van Der Burgt. Even when prices are rising and likely to hold for as long as a couple years, like he was anticipating, forward contracting isn’t a bad idea and elevators still advocate it. For one thing, producers generally don’t (and shouldn’t) contract everything, so you can still hit highs later in the season. Plus, the market is cyclical. If it’s on a 10-year cycle, then nine out of 10 years, producers win by forward contracting.
Back in 2012, the last time prices were in this neighbourhood, farmers had to make similar choices, he said. By and large, the winners were the guys who locked in 20 per cent of their crop early on. “It looked high at the time,” and turned out to be the high. It’s an important reminder: “Once you’ve made a forward or spot sale, that’s it. You close the binder and don’t look back,” he said. “Don’t beat yourself up over a price you took a month ago. Someone else will do that for you.”
He recommended producers toss out 2020 crop prices when deciding what they want for their corn and beans. Forward numbers compared to the last five years (minus 2020) are “extremely attractive,” he said, but it’s easy to feel like you’re missing out when you consider 2020. “It doesn’t resonate because we’re seeing $7.50/bushel corn nearby. We see $6/bu and think it’s OK, but it’s no $7/bu. When the reality is that it’s amazing.”
Incremental sales help with that as well. Incremental price targets and smaller individual sales help you get crop moving out the door. There’s no magic bullet, Van Der Burgt said, adding that the key is to keep selling crop regularly and base your targets on your cost of production. “(Keep your) eye on the prize: being able to farm next year.” And the reality for anyone chasing the highs or hoping to cash in is that prices drop a lot faster than they climb. “The old saying is it takes the stairs up and the elevator down.”
Producers are definitely taking advantage. Rolling Acres at Clifford likely had more grain contracted by the end of last month than ever before, said owner Dan Renwick. Prices are high and producers want to take advantage.
It’s a lesson producers should hang onto. “Always look forward to selling crops, and be proactive in your marketing. It’ll make you more money than to wait for the price to come to you. If the price is there now, get it sold.”