You may or may not know that other than the client specific recommendations I also track the generally strategy and literal sales that I would make if it were my farm. I track 8 crops. I not only use this as a report card, but to really gut check the recommendations I make. I also use this information to assess what production changes farmers are being influenced to make, which leads into my Canadian seeded acreage analysis and projections. You might have a hard time finding a consultant willing to release this kind of information. I wonder why that is?
- Barley I stick with 2-row Malt bids.
- Canola I use only Generic bids as most IP programs are some form of market plus anyway.
- I only track Brown Flax.
- I track 2 types of Peas and Lentils, but make identical recommendations. I only separate them to assess if ratio shifts by type are being motivated.
- For Oats I used generic Elevator bids.
- For Durum I use a couple delivery points along the Trans-Canada highway and adjust to a 2 CWAD 13 protein price.
- Spring Wheat is also for a 2 CWRS 13 protein, but Basis average includes all corners of SK.
I look at the same yield and quality risks every farmer faces. I apply the same emotion and risk assessments you do. I use prairie average costs which I get from government data and apply my own assumptions. I also ground my assumptions with any benchmark and client feedback and budgets. I use Canadian average yields. I start with 5 year average for projections and when crop is reduced I reduce my yield too (unlike others who always sell 100% of planned yield). For cash prices and Basis levels I use SK averages. Canola for example is an average of crush plant bids in Lloydminster, Clavet, and Yorkton plus Export bids from North Battleford, Moose Jaw, and Swift Current.
In the consulting line of work we always say that meeting business needs and addressing risks is your highest priority, not net price. I believe the goal of marketing is to address business needs and risks AND achieve highest possible prices. See how I feel Grain Marketing has Changed by clicking this link.
Here are my results. My actual contracted net weighted average prices vs simple average bid prices ( averages sourced from canadagrain.com database):
|DLN 2015 Crop Results||Net Average Price 100% Sold||Average Bids|
|January 2015 – present|
|2 Row Malt||5.88 bu||N/A|
|Generic Canola||11.24 bu||10.28|
|Brown Flax||12.48 bu||12.01|
|Red Lentils||0.315 lb||0.39|
|Green Peas||8.90 bu||8.43|
|Yellow Peas||8.31 bu||9.57|
|2-13 pro Durum||8.91 bu||7.86|
|2-13 pro Spring Wheat||6.82 bu||5.82|
Here is how I did it:
It was a quiet year for Barley. Outlook was sideways for most of the year.
- I elected to sell 1/3 just after harvest (Nov 5, 2015) at $5.50bu. This sale was to generate cash flow. I selected Barley because it had limited upside potential, and uses allot of bin space.
- I sold the balance on Feb 29th for $6.00bu. Six bucks was my target for the year, and I had no other grain moving at that time so I let it go.
I did very well in Canola last year. My net average price is higher than what a couple local elevators told me their top cash contract for the year has been.
- I sold 10% for a cash price of $10.49bu for harvest delivery and bought a ATM Call Option ($23mt) on June 2, 2015. I later sold that Call Option for $45mt on July 6, 2015. Net price of first sale $10.92bu.
- I also locked an additional 10% harvest delivery on a 3 week average Futures contract June 2. Net Price ended up $10.73bu.
- On Sept 1, 2015 there were some good harvest Basis levels available as seed deliveries to export locations was slow. I elected to make a big play and contract 60% (turned out to be 65%) of my Canola on Basis only and delivered it right out of the field. The carry to July 2016 Futures was only $9mt and I was Bullish so I rolled my Futures out and waited. I finally pulled the trigger on Futures May 24, 2016 at $520mt. Net price of $11.18 and it never had to hit the bins!
- I contracted the balance on April 20, 2016 to a Basis contract for June delivery and rolled Futures to November picking up a $6mt inverse. These were some of the best Basis levels seen all crop year. I locked in the futures at the same time as my 3rd sale on May 24, 2016 bringing my total Futures sale on May 24 to 85% of the crop. I made a few bucks on the inverse strategy and netted $11.68bu. NOBODY else will risk making a recomendation to sell 85% at once!
Flax market was pretty choppy during the 2015 marketing year. At $12.48 I would make good money, and beat the average bid for the year.
- First cash sale was made March 2, 2015 for Fall delivery $12.00bu delivered
- Second sale was March 10, 2015. A 10 bushel per acre production contract with Act Of God for $12.75bu FOB farm. Combined with first sale I was 10bpa sold on all acres.
- On August 20, 2015 I was concerned that there could be some Bearish acreage or Old Crop stock adjustments to be released by StatsCan the next day. With general crop concerns peaking I sold aggressively considering harvest hadn’t started. I anticipated I would be as much as 80% sold including this contract. Net price $13.00bu delivered.
- I made my final sale Feb 29, 2016. The rebounding dollar had already influenced most grain companies to drop bids, but smaller buyers had not reacted. I got $12.00bu, and haven’t seen that price for immediate delivery since.
Before you rip me a new one for averaging in the low $0.30lb consider a couple things. The record high prices achieved post harvest would never have happened if people had significant amounts of Lentils unsold. I seriously doubt that more than 25% got sold above $0.40lb. I will also bet you that over 25% was contracted pre-seeding for under $0.30lb. Remember yields suffered so 10 a bushel per acre pre-seeding sale turned out to be 45% of production. Although compared to the highs my prices don’t shine, I strongly believe I still achieved true average or better (not a simple bid average). I also sold aggressively to cover early cash requirements enabling me to hold Spring Wheat and Canola until very late in the crop year which paid huge dividends. Prices are for reds because I had no clients growing greens last year. I should also note for those of you who did not suffer crop losses; if I had applied this strategy but grown 20% above average instead of 20% below average like many of my clients did my realized price would have been $0.384lb for Red Lentils which would match the simple average bids.
- I made the standard 10bpa AOG sale March 2, 2015. $0.26lb (reds) seems pretty poor now, but at the time that price was buying acres vs other crop options. StatsCan did eventually confirm a record acreage in April report. This would end up being 45% vs 33% planned.
- By May 14, 2015 cash prices had rallied to $0.30lb. Having already sold 10bpa and seeing a possible Bull trend developing I felt 2.5bpa was the most I could do. At the time I thought I was 40% sold, in the end I was already 57%!
- On Aug 4, 2015 I felt that yield concerns were peaking. Prices had gone up from my last sale, and I was already planning on back end loading my Spring Wheat and Canola sales. Once our harvest starts, Australia is right behind, and Indian Karif crop could replenish Indian grain stocks (didn’t turn out that way!). I sold up to where I estimated 80% of my reduced crop would be and got $0.34lb.
- I sold my remaining 20% Nov 2, 2015. My comment was “Prices just too good to not take advantage. NOT Bearish, but have to protect my blind side.” That sale was for $0.45lb. Buyers were already making New Crop offers so I knew I would get a chance to lock in some very good New Crop prices.
- In the months that followed I locked in 50% of my 2016 production at $0.40lb, and obviously maxed out my acres.
Not much to talk about with Oats. The theme has been the same all year. No good reason to hold, no downside risk to motivate sales.
- I made a post harvest sale for $2.90bu bu for 35% of my actual production. Only reason being amount of storage Oats tie up, and it looked like Canadian Dollar could be finding a bottom.
- In January there were some spot premiums around and again it looked like we were going to lose the benefit of a falling Canadian Dollar so I made a sale again at @2.90bu taking me to 50% sold.
- I still show 50% inventory which is a little impractical for bulky Oats which have little upside or downside risk. In my scenario I try to go into harvest sold out so I will be dumping these in the next 6 weeks.
My 2015 Pea marketing decisions mirror Lentils closely as the two crops shared the same market drivers, and had similar Canadian fundamental outlooks. In hind sight I was sold out early, but I operate under the assumption of even cash flow and logistics and had to sell something in the Oct-Dec time frame. Simple average bids for Peas are also misleading. From my conversations, bid indications, and feedback from buyers I do not believe more than 10% of the Yellow Peas were sold over $10.00bu. Truth is I think only 1-5% were sold in that window which lasted 6 months or 50% of the simple average!
- I sold 1/3 of anticipated production March 2, 2015 for $7.40bu.
- Prices rose so I made an average up sale in May for $8.00bu, putting me 17bpa sold pre-seeding.
- Like Flax and Lentils I sold aggressively pre-harvest as I was concerned that the lowest yield estimates were behind us on Aug 4, 2015. I felt that the $9.00bu was overstating the crop losses and made an aggressive sale
- After harvest I sold the little bit I had left for $9.50bu. I commented at the time “$10 peas are rare. I am not Bearish, but how much upside could I miss selling $9.50 peas?” About $3.00bu as it turns out!
I just recently contracted my last 42% of Durum. I didn’t profit from holding this long, but I didn’t miss out on much either as bids have spent most of the time post harvest at or below $8.00bu for 2 CWAD. I was comfortable holding out this long because I had 60% sold pre-harvest averaging close to $10.00bu.
- I waited into the summer to make my first Durum sale. New Crop bids had sat well below Old Crop and I didn’t feel that was justified by fundamentals. My first goal was to see inverse completely disappear, and then depending on market dynamics at that time decide what to sell. Old/New crop convergence happened in the low $9.00bu in early July, but drought stories, and areas hardest hit influenced me to hold and target $10.00bu. July 17, 2015 first local bids hit $10.00 for 2 CWAD, drought story still evolving I decided to use discipline and sell 10bpa. Bids peaked later that month with a few contracts done at $10.50 or higher, but very few as drought was serious and sellers were few.
- On August 4, 2015 after a big general rain I decided that the lowest yield estimates were behind us and I contracted enough to get me to 50% sold. I was able to get $9.75 for 2 CWAD on that sale.
- I sold the balance of 42% recently. I was able to get $8.00, $0.30-0.50 higher than the best New Crop I could find. Old Crop Demand has disapointed a bit, and I am concerned that last years crop wasn’t quite as small as StatsCan indicates. All buyers still seem to be able to find Durum on farm unsold everyday. I am projecting a record high percentage of Durum in Canadian All Wheat Ending Stocks. If forecast acres hold it is possible that by summer of 2017 we could have 60% of all of the wheat in Canada being Durum. Only Spring Wheat can save our prices…….and Spring Wheat is no super hero.
- For the second year in a row I am going into spraying and summer with no New Crop sold. I won’t wait much longer.
Easily the hardest grain to market. US based Futures, inconsistent reference grades, and variable contracting policies are just a few of the problems we face marketing Spring Wheat. Currently we are looking at the smallest Canadian Ending Stocks on record and stocks still trending lower, yet we can’t do better than $6.00bu? It is not that we are insignificant in the global Wheat market, it is just that our prices are tied to the US and their fundamental situation is terrible. Even with record Wheat stockpiles the high US Dollar had buyers importing panamax vessels full of Argentinian Wheat because it was cheaper landed in the Mississippi than US Wheat! Difficult to “fix” their surplus facing headwinds like that! I was able to grind out a decent average price relative to average bids over the year, but it was by far more work and effort than any other crop.
- I started my Wheat marketing way back on Dec 18, 2014, contracting 20% of anticipated production. My first sale was a Futures First locking in 6.80bu. Futures did collapse following that decision so I bought an Out of the Money Call Jan 29, 2015. Strike price on the Call was 6.80 and I paid $0.10bu. Because I had a Futures way above market I bought this call as insurance so that if in the 8 months before delivery market rallies beyond my Futures I would benefit from that rally. That Option expired worthless. I locked in the Basis on Feb 3, 2015 because a Crude, Canadian Dollar or Spring Wheat rally would make Basis worse. My Net ending price was $6.69bu.
- Following the same signals in point 1 I locked in an additional 20% on Basis only. I also took a long Futures position @ 6.00bu. This was a high risk play that puts me in a double upside, double downside position. Fortunately we did get a post seeding rally and I was able to lock Futures at 6.46, and add $0.44bu profit after admin from my Long position on July 6, 2015. Net cash price on this contract was $6.78bu.
- On Sept 1, 2015 There were some really good Basis levels available (+1.25bu) due to continued weakness of Crude driving Loonie lower. I locked in July 2016 delivery Basis bringing me up to 70% committed. I sat on this open Basis all the way through the bottoming of Futures in January, eventually locking in Futures at 5.38 on April 5, 2016. Net price $6.68.
- On Jan 27, 2016 I locked in my last 30% on Basis only for July 2016 delivery. Once again Crude, CAD, and MGE Wheat were showing bottoming signals. This time the signal finally turned out true. Basis on this contract was +1.50bu. I locked in half of my Futures on this contract April 18, 2016 when headlines featured flooding in Texas and Kansas. Net on that portion was $6.82bu. The second half I established futures on May 4, 2016. I was anticipating Kansas crop tour to confirm a good Winter Wheat crop which could push any upside potential past the expiry of my July futures. Net price on my final play was $6.92bu.