Greg's Top 3
There is so much going on in the world right now and some of it even relates to agriculture. From my vantage point I have compiled the 3 major factors likely to influence the market in 2019. This is big picture stuff, but it needs to be on everyone's radar if they are to make 2019 a marketing success.
1. Trade disputes & Political Nonsense
Without a doubt the political situation is number one. Politics will Trump (pun intended) everything. Even a major crop wreck is no match to the antics of the world "leaders". This is a known, but how does one market grain in this environment? This is not an easy answer- especially when prices are near decadal lows. The risk to reward ratio is crazy. Political statements and policy change could move the market up or down significantly and instantly. We all know how this works. So the question remains: How To Market Your Grain When Politics Is the Problem? The answer is: know your cost of production, know your marketing zone, use TARGETS.
The ultimate game of cat and mouse. We all know that supply and demand is now a worldwide factor. Countries that were once small producers are now large producers. China and India have huge growing appetites for everything. However, for Canadian farmers our main problem is exports. And Now that the world has become very fluid countries can source grain from almost anywhere. While source and destination may change the same basic supply and demand equation is still very much alive and well. This ushers in the question at what price do you sell you grain at? It's the black art of selling. Price is ultimately boiled down to money supply and world ending stocks ratios. World ending stocks give the market direction and money supply the magnitude until the market reaches some sort of equilibrium. Let's take canola for example. Bad news hits the market in early spring - the market crashes, then it climbed up before leveling out at around 450 in mid June. It has bounced around these levels because there is no reason for it to rally or drop. Obviously, the market is very content at these levels.3. Canadian Crop condition
Ironically, Canadian farmers have a better grasp on the US crop conditions than our own. Fortunately, Alberta does produce a crop report and according to AFSC on August 13, 67% of all crops across Alberta were rated good to excellent. In Fact, Central Alberta was the winner with 81% good to excellent which is way up from the five year average of 57%.
How does this affect the farm gate price? BASIS. In fact, I would argue that grade and protein spreads are a form of basis. It's no secret, when there is a good high quality crop then basis levels widen out, as in the number is a bigger negative.
Knowing what we know about the crops across Canada it is safe to assume that quality will be much more of an issue than in years past. It just seems like a cooler and wetter year creates more quality issues than a hot dry summer. However, that was not the full story across the whole prairies. At one point, Saskatchewan was basically written for lack of moisture - then the heat came. Again this points to a smaller crop, but high in quality. Translating this back to basis levels and grade discounts it means that local regions should be more localized than in years past. For example, the spread between a #1 HRS and #3 HRS could be light years apart in different regions of the prairies. As harvest roles along quality and quantity will soon be established. It is important to understand the role that both quality and quantity will play in establishing basis levels and discount schedules. Basically, I think this year will be a good year to shop the grade and discount spreads probably more than other years as consistently across the prairies is not very likely on a year like this.
As stated above there is the answer is: know your cost of production, know your marketing zone, use Targets. Most farmers know about cost of production and using pricing targets, but few have heard of the concept marketing zone. A marketing zone is the selling sweet spot. It's the proper marriage of risk management and maximum price. Determining your marketing zone is in lots of ways it's the black art of grain marketing. However, the trick isn't in the strategy, it's in the execution.
Any Questions, Remarks, Queries, Ideas or Topics:
Types of Grain Traded: Barley, Wheat, Canola, Off Grade Canola, Peas, Pulses, Oats, Flax, etc. Basically, I can find a home for just about anything.