By Patrick Meagher
There are two wonderful times of year when grain farmers are practically assured of selling corn, soybeans and wheat at a higher price point that one might call a spike, says well-known Parrish and Heimbecker grain merchant Steve Kell.
The first time is in the dead of winter and the second is between June 15 and July 15.
Provided that there isn’t an early heavy snowfall, “the first day the school buses are cancelled — sell corn,” Kell joked.
Winter is a great time to forward contract your crop to be delivered at harvest, or, even better, as far out as one year in advance, he said. Uncertainty always brings a higher price and we don’t know the 2018 weather and what the future crop will be like “but we worry about it.”
Speaking to an audience of grain farmers at the sold-out Eastern Ontario crop conference in Kemptville on Feb. 13, Kell asked the crowd, “Who’s selling corn now for next year? That’s the smart people in the room.”
He also noted that “Nobody gets any immediate satisfaction in a deal 12 months from now” and not all farmers can afford that longer-term plan, especially if they need cash flow. (Spoiler alert: Kell likes a good joke). “Maybe a farmer needs the money now, or his wife needs the money or his wife’s lawyer needs the money.”
The second price spike occurs at the beginning of summer. There is always “a bump at the end of June” or a little further out, said Kell, who farms near Barrie, Ont. He asked the audience if anyone sold corn last year on or about Canada Day? About 15 hands went up.
“Show offs,” Kell said with a smile, noting that every year farmers get a “fairly reliable” U.S. weather rally and always at a time when plants are small enough to be damaged. But after pollination when the crop is made and we know how much there is, it takes uncertainty out of the market and price plateaus.
One simple statistic that helps guide farmers when thinking about where price will go is the stocks-to-use ratio. That figure, presented with each USDA report, shows how much supply is out there. In other words, how much carryover of crop there is from the previous year. A carryover of 10 % or less tends to push up price, Kell said.
A 10 % carry over means only 35 days of world supply is available. A stocks-to-use ratio of over 15 % to 20 % means supply is so plentiful, no one is worried about not having enough, he added.
Kell also offered a few marketing strategies to avoid, including hoarding your crop. It almost never works, he said. Hoarding did work in 2012 when there was a big drought but those kinds of weather events only happen one year in nine. “It taught people bad habits.”
He also chided farmers who hang on to corn in hopes of an end of season rally. “Hang your head in shame,” he said. Soybeans, however, do see a price bump at harvest three years out of five, he said.
In a later interview with Farmers Forum, he added that corn, soybean and wheat growers also typically see a Christmas rally, when price picks up in December, but that didn’t happen in 2017.
Kell advised farmers to forward contract 33 % of their crop in winter, 33 % in the summer weather rally and sell 33 % after the crop is in the bin to avoid the awkward situation of not having enough to fill a contract.
