This spring has certainly provided an exceptional combination of weather issues, and those have caused some significant changes in many producers’ cropping plans for 2014. As we are busy in the fields with all of the decisions surrounding crop management, and potential production changes, it is critical to keep in mind that adjustments in production have a direct impact on both the markets and the marketing plans of our individual operations. It is key to make certain that the marketing strategy keeps pace with the evolving production plan.
For growers who have forward contracted grain which might not be produced due to the weather, the situation certainly bears being addressed. With so much of Ontario’s 2014 winter wheat crop being ripped out due to winterkill, there has been no shortage of farmers who had forward contracts on wheat, which is no longer going to be produced. This is not a particularly troublesome problem because 2014 is not the first time that wheat has been destroyed by winter, so the trade already has mechanisms in place to remedy the situation. The most common practice this year has simply been to advance the delivery period on the contract by 12 months, and have the farmer deliver 2015 crop wheat instead of 2014 crop.
A cautionary note to producers is that if this is the predicament which you find yourself in, (contracted wheat has been winter killed), make the phone call to your grain buyer as quickly as you have made the decision to tear up the wheat. If you phone the grain elevator as the Agricorp adjuster is driving out your laneway, most grain companies will be very accommodating in repositioning the contract. If you wait until the grain elevator calls you in late August wondering why you didn’t deliver wheat, and the excuse is, “well, back in May we had to rip it up,” don’t expect them to be nearly as conscientious about amending the deal. The markets spreads can change, and what today would be an easy adjustment could become financially punitive. The more notice that you provide of the problem, the more time both parties have to work out an equitable solution.
In addition to dealing with previously existing contracts which might have become problematic, a shift in planted acreages also requires a shift in marketing plans. If you were heading into spring seeding 30% to 40% sold on new crop soybeans, and then the delayed planting is pushing your soybean acres up, there is a requirement to get some additional new crop sales in place in order to keep the marketing plan in balance. It is critical to make these marketing plan adjustments as fluidly as you make the seeding changes, as it can be problematic to wait until the market has figured out the potential changes to the supply. If you are swinging more acres into soybeans this spring, it is entirely likely that you are not the only farmer in North America making the same decision. Every acre that makes a switch has an impact on the new crop supply, and more acres is unlikely to be supportive for price. Ratchet up your new crop sales before the number counters get too far along in recalculating 2014’s potential supply.
Another impact of the delayed spring is that the later that crops get started, the later they tend to be harvested. Old crop grain stocks are apt to be additionally stretched out this year, because at this point we have no reason to believe that harvest will begin early in 2014. There is really no telling how the summer’s weather will advance going forward, but at this point it appears that 2013 grain stocks may have to stretch over an additional two weeks of demand before this year’s supply will become available. In crops like corn, where the old crop ending stocks appear to be adequate, the impact on price of delaying harvest would be limited, but in commodities like hard red winter wheat where stocks are precariously tight, an extra 10 days of demand has potential to spike basis.
Marketing a crop correctly is equally important to a farm business’ success as is optimizing production. While at this time of year, producers are focused on managing production changes, let’s stay focused on the impact of those changes on the marketing strategy and earn the rewards of both making good decisions, and earning a return from them.