By Michael Brown, AAg CCA, Crops Extension Specialist, Humboldt
Harvest 2020 has finished well ahead of schedule in most of Saskatchewan thanks to a hot, dry July and August. The weather conditions sped up crop maturity and a lack of any precipitation during harvest prevented combines from grinding to a halt.
Now that the crop is in the bin, it’s time to start looking at marketing your product. When it comes to price received at the farm gate there are many factors that can influence the price received for your commodity.
International, national, provincial and municipal events can influence prices on various commodities. Some events that could impact prices include: internationally, a lack of monsoon rains in India may lead to increased prices for pulse crops; nationally, there may have been a lack of quality feed barley produced in Alberta and feed barley bids in Saskatchewan increase; provincially, there may be a bumper crop of canola produced in Saskatchewan that depresses canola prices; municipally, an elevator in a neighbouring rural municipality may place a premium on a certain grade of crop to fill an order. These are only a handful of hypothetical factors that could have an effect on markets and commodity prices that are constantly changing.
Understanding futures markets and the basis can help make sense of the messages the markets are sending. The basis is a fundamental part of how cash prices are determined for open market crops and understanding how to use it is crucial to achieving top market prices. In short, it is the difference between the futures price for a commodity and the local cash price offered by grain buyers.
Typical costs in the basis are elevation, freight, weighing and inspection, interest, storage and administration, hedging costs and profit margin. A wide basis is a large difference from futures price and cash price and is usually a signal from the market to store your grain as supply is outweighing demand. This is commonly seen during harvest. A narrow basis is a much smaller difference from futures to cash price and is a signal from the market to sell grain as demand is now starting to outweigh supply. This is commonly seen later into the winter months and early spring to entice grain sales. In some cases, there may even be a positive basis where cash price is higher than futures prices and it is a strong signal that the market is looking to accept the commodity.
Depending on how far under or over the basis is of the futures market price can determine whether or not it is worth it to market your crop. The basis is just one part of building a successful marketing plan where there are six key elements to consider:
- Production and Production Risk: Choose crops that have the greatest income potential within the crop rotation used and understand the risk associated with growing that crop.
- Market Analysis: Gather all information needed to make an informed and rational decision. Closely monitor the market and time grain sales for when prices are advantageous.
- Financial Position: Understand production costs and farm cash flow needs.
- Marketing Strategies: Reduce risk of falling prices by using grain contracts and by managing storage.
- Actions and Timelines: Identify target prices, sales tools, decision triggers and establish a timeline and key responsibilities for implementing the plan.
- Evaluation: Grain marketing is an ongoing activity; review the marketing strategy at least yearly.
The Introduction to Grain Marketing factsheet (available below) can help new grain marketers understand how markets work and what to consider when building a marketing plan. It can also be a refresh for those savvy grain marketers. Good market information should be unbiased, balanced and independent. Information should be free of any bias from an individual broker, trader or grain company that may have a vested interest in getting you to sell your grain or trade a commodity. It should reflect the views of all market players – buyers, sellers, grain companies and farmers and good market information should be backed up by facts and statistics.
For more information, contact your local regional crops extension specialist or call the Agriculture Knowledge Centre at 1-866-457-2377.
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