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Crop marketing 101
By Brandy Harrison KEMPTVILLE Bins full to bursting after demand is sated isnt a recipe for high-flying prices, warns a grain merchant with Parrish and Heimbecker, Limited. Corn demand is higher than ever thanks to the biofuel industry, but it isnt enough to gobble up a projected 1.82 billion U.S. carryout in 2014-2015, says Steve Kell, a Toronto-based marketer and Simcoe County crop farmer. Its the same for soybeans. World soybean demand has spiked but farmers went overboard and there is three times more carryout than there was two years ago, says Kell. “Were getting to the point where its like trying to run the race with a backpack full of bowling balls,” he says, adding that prices are still only $20 per tonne off last year if farmers market aggressively. Kell presented these marketing tips at crop day in Kemptville last month on selling your crop.
1. Keep an eye on corn planting intentions. Watch for the March planting intentions reports from the United States Department of Agriculture, FCStone, and Informa to see if intended acres match up with U.S. corn demand of 93 million acres. If planting intentions are below 93 million acres, hang on to corn because price is headed up. “But if people start talking about planting 95 or 97 million acres, head for the fire escapes,” says Kell.
2. Stocks-to-use ratios are a price indicator. Stocks-to-use ratios create price ranges. Price rations demand, says Kell. The higher the ratio, the lower the price. In 2014-2015, the stocks-to-use ratio is high at 20 per cent (1-to-5) for corn, which means farmers can expect 2005 to 2006 prices, says Kell. The spot cash low for corn in Illinois bottomed at $1.64/bushel in mid-October 2005.
3. Sell downfield in an oversupplied market. When stocks are high, wait to get paid because the best prices are further out in June, not March. “Nobody is keen to buy because they know the (inventory) is out there.”
4. Watch Ukraine for a rumour rally on wheat. The Black Sea region is the principal competitor for wheat and worry about difficulty planting, harvesting, or exporting during conflict in Ukraine got the market excited, says Kell. But none of those fears played out in 2014, so dont wait for something to happen. “You want to sell the rumour and not wait for it to become a fact.”
5. Monitor spreads to predict market moves. When spreads the price gaps between consecutive futures months like March and May are stable, the market tends to stay on track. But when the spreads collapse, the market is changing direction.
6. Grab a seasonal high. Farmers could do better than average by only selling wheat into traditional October and March highs, says Kell. Soybean futures and basis rally in February but drop off as South American harvest begins. Once the North American crop is in the ground, prices keep falling, but the wild auction to fill Ontario ports begins in the fall, says Kell. “The best time to sell popcorn is when the circus is in town.”
7. Dont ignore the basis. Ontario has a big asset that heads off local oversupply and buoys prices: highway H2O, says Kell. The province consumes more corn than it produces, which is reflected in a better basis. At the end of last September, corn was under $3 in the Dakotas but more than $5 around Ottawa.
8. Examine fund behaviour. There is four times as much fund money as there is ag money in the futures market. “Its a little bit like if I were in a canoe with a guy that weighed 300 lb. I would want to know which way hes going to lean because thats the direction the canoe is going.”
9. Monitor open interest.
Open interest, which measures the movement of money in and out of the market, anticipates the move. If open interest is building, farmers can sit tight, but if it starts to drop, price typically follows, says Kell. Open interest is like a doorman at a bar, he says. “If no one is coming in and people are leaving, the bar is going to get quiet.” |
