Back to the basics of crop marketing

“As the growing season progresses through September and crops approach maturity or are harvested, crop conditions across the Canadian Prairies are highly variable but can result in near-average yields,” said Neil Blue, provincial crop market analyst with the Government of Alberta.

Harvests in major U.S. growing areas are generally good, with average to above-average yields expected. Prices have fallen from seasonal highs in April/May. What strategies should be considered now that prices are at their lowest?

As crop growth progresses through the growing season, and depending on crop yield potential, estimated costs per unit of production, realized forward pricing level, and risk-taking approach, producers set the forward price of crops using individual target prices and choosing from different available pricing alternatives.

“Crop buyers offer several types of contracts to choose from,” Blue says. “Most contracts with a crop buyer include a delivery commitment. This can be a good solution if there is a need to deliver a crop during the harvest period, whether for storage or cash flow reasons.”

Futures and options are also factors in pricing and offer the potential benefit of locking in a forward price, or minimum forward prices, without a commitment to physical delivery. One limitation is that the only remaining Canadian dollar-denominated futures contracts are for canola. U.S. dollar-denominated futures contracts are available for wheat, oats, corn, soybeans and soybean products.

An alternative to meet at least some cash flow needs is to use the federal Advance Payments Program. Under this program, a producer can access total advances of up to $1,000,000 based on the value of eligible agricultural commodities to be produced or stored. For the 2024 program year, the first $250,000 of the advance is interest-free. Repayments of an advance are made as the agricultural commodities are sold.

“The general recommendation is not to price more than 50% of the expected crop prior to harvest, after which the volume and quality are better known. Occasionally the 50% level is exceeded, particularly if prices offer revenue opportunities far in excess of production costs, and either a deferred delivery contract includes a “safeguard clause” to protect against the adverse effects of a production shortfall, or options on futures contracts are used, which avoid a delivery commitment.”

Producers should either monitor markets and be able to recognize market opportunities as they arise, or subscribe to a service that does so, Blue says. After harvest, consider using the Canadian Grain Commission’s Harvest Sample Program to get an unbiased estimate of base crop grades. These grades can be a useful reference when dealing with buyers.

“Then continue to shop the market to find the best available farmgate prices, again considering profit levels, market outlook and cash flow needs. Finally, over time, ensure the remainder of the crop is stored safely to maintain quality characteristics,” Blue says.

For more information, see:

Agricultural Marketing Guide

Contact

Contact Neil Blue for more information.
Phone: 780-422-4053