2019-2020 will be one of the hardest years to market grain. There is nothing in the market or world that is conducive to a calm predictable year. Weather is crazy. Politics is even crazier. Yet, with that being said, I personally think this year will be very good to Canadian farmers if they play their cards right. This year, a pencil will be the most profitable investment.
World Ag Stage
Politics is still at the front and foremost with everything trade related. However, it is now summer and the crops in the northern hemisphere have been growing steadily for at least a month. So far the word extreme would describe the current growing season. Saskatchewan is too dry. Central Alberta is perfect. Southern Alberta is too dry. The Mid West is way too wet. It seems like around the world crops are either getting drowned or drought. It makes marketing very hard. The uncertainty is the highest I have ever seen.
Market Snap Shot
The Old Highs are the NEW Lows
Quick, one word that describes canola marketing: politics. A conservative estimate is that Canadian canola is trading at discount of at least $35/mt or about 80 cents because of Liberal political ineptitude. A number derived from examining EU and Australian numbers. With that being said we might as well just factor Liberal lunacy into the canola pricing equation and go from there. Let's take some time to explore some thoughts as the growing season is about 1/3 complete. What can we expect to see in the next couple of months? Are we looking at a serious bearish market or neutral or will it turn bullish? Well at this stage there is simply too much unknown to make a confident pricing decision. With the exception of feed barley, most commodities are pretty much near their long term lows. Especially, wheat and canola. As I have said many times before, "The old highs are the new lows". This means that the canola futures should not drop much lower than they are now which is currently hovering just above that 440 range. Wheat too, is experiencing the same thing. On the 20 year Kansas chart the old high before 2008 was about 5 bucks now the new low is about 5 bucks (Chart 1). Armed with this knowledge what does a producer do? First of all, don't panic. Don't get suckered into some "fancy contract" or some goofy online penny pinching app. What you're looking for is dollars. These extra dollars are achieved through smart marketing and a disciplined approach utilizing systems to achieve your goals. Like the systems Insight Ag Marketing provides.
What Are We Learning Right Now
At this time of year the number one tool for marketing is target price agreements. During the summer the market can be crazy. But, how do you set your targets at a reasonable level you ask?
Well that's a good question.
Step one: Don't set your target below your cost of production. Don't Know? Call me.
Step two: What is a reasonable price? This is actually quite easy. Remember grain is a commodity. There is nothing special about grain. The whole world grows grain, it's not crack or insulin. #vertical_demand_curve. This means we can use technical analysis of charts, historic data, global profit margins, and of course arbitrage to figure out a reasonable pricing level. By taking this information you can glean a sweet spot for the next leg up. By not understanding this knowledge a target is either set too low or too high. If that is done, the target is completely useless.
The real beauty of proper targets is that you capture the big gains in the market, not just the penny from pitting buyers against each other. The other amazing thing about targets is that they become an automatic non-emotional tool to sell grain in a profitable manner. The use of proper targets is the number one tool for effective and profitable marketing. Unfortunately, too many guys are using a rock for a hammer.
Things We Need To Consider
It goes without saying that the main concern is a successful harvest. No need to flog that horse.
In the real world there are a million things that can cause this market to go screwy, and only a handful have to do with the business of farming. Once again, this 2019 and 2020 will be dominated by politics. Canada has an election in 2019, the US in 2020. Also, the EU is in a constant state of disarray. Basically, we all need to stay vigilant. There will be some good opportunities as the market is setting up nicely. So stay calm and keep farming.
With the current prices where they are there is not really much of a point in booking anything right now. However, it is very important that farmers use targets as the market can rally in an instant. Remember, they always try to kill the crop in midsummer at least once.
Life on a farm is a school of patience; you can't hurry the crops or make an ox in two days. -Henri Alain
Two donkeys are standing at a roadside, one asks the other: So, shall we cross? The other shakes his head: "No way, look at what happened to the zebra."