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38
The Business of
Ontario Agriculture
Better Farming
December 2016
BETTER
BUSINESS
D
ecember is a good time to
plan. For years, you have
considered the advantages of
commodity crop marketing. You’re
interested, but then you start to
research and your eyes start to glaze
over when you encounter terms like
futures, margin, hedge, bull markets,
and bear markets. Don’t let those
specialized terms intimidate you.
In the end, commodity marketing
is about understanding supply and
demand. When there is lots of supply,
commodity prices are typically low.
When there is no supply, commodity
prices are typically high. Traditional-
ly, supply is higher at harvest and so
the price goes down.
But the psychology of fear has a
large part to play as well. If there is a
drought or flood during the spring or
summer, people in the industry may
begin to worry that there will not be
enough of the commodity when
harvest comes. So, organizations such
as grain elevators, food suppliers, and
energy suppliers enter into agree-
ments with farmers ahead of time to
guarantee their supply at harvest.
The majority of farmers sell their
crops at harvest. That’s how crops
have been marketed for hundreds of
years. But, most years, harvest time is
when the price is at its lowest.
For most farmers, commodity
marketing is a major change in habits.
There are, of course, risks involved
with pre-selling your corn or soy-
beans. For example, what if the price
of grain is actually higher at harvest
than when you book? Will this mean
you will lose money? Historically this
has happened – but the law of
averages is on your side.
What if you pre-sell and at harvest
you don’t have enough bushels to
meet your contracts? There are ways
to reduce this risk as well. As outlined
below, if you don’t commit 100 per
cent of your crop you should be able
to mitigate this risk. What is the worst
crop you ever had? For peace of
mind, don’t commit more than that
amount of bushels in a forward or
futures contract.
First, you need to gain at least a
basic understanding of commodity
marketing. The price of corn and
soybeans is influenced by many
factors: weather and politics – both in
our own province and country as well
as internationally (United States,
Brazil, Russia, etc.), energy costs, and
the Canadian dollar, to name just a
few.
The easiest way to start to build an
understanding of these factors is to
consume specialized information.
You can select from a number of
newsletters and services to subscribe
to. And these resources are usually
worth their subscription fee since
they save you time in researching the
information. Consider the investment
this way: is it worth the $500 sub-
scription fee if your bottom line is
increased by $10,000 each year?
Before you move onto the next
step, you should determine your cost
of production. There are many tools
available from commodity risk
Will 2017 be the year you start
commodity marketing your grain?
by DENISE FAGUY
Don’t be intimidated – becoming familiar with the markets may not be as overwhelming as you think.
2015 Aug
Sept
Oct
Nov
Dec
2016
Feb
Mar
Apr
May
June
100
80
60
40
20
0
Historical patterns of corn prices
Percentage of seasonal pattern
Jun 30, 2016:
30-Year:
79.31
5-Year:
26.36
15-Year: 77.83
Source: Moore Research Center, Inc.