“As the growing season progresses into September and crops approach maturity or are being harvested, crop conditions across the Canadian Prairies are highly variable but may result in near average yields,” says Neil Blue, provincial crops market analyst with the Alberta government.
Crops in the major growing areas of the U.S. are generally good, with average or above average yields expected. Prices have fallen from the seasonally stronger levels of April/May. What are some strategies to consider now that prices are off the highs?
As crop growth advances during the growing season, and depending on crop yield potential, one’s estimated costs per unit of production, level of forward pricing completed and approach to risk-taking, producers forward price crops using individual target prices and by choosing from various pricing alternatives available.
“Crop buyers offer several types of contracts from which to choose,” says Blue. “Most contracts with a crop buyer lock in a delivery commitment. That can be a good plan if there is need to deliver some crop during the harvest period, either for storage or cash flow reasons.”
Futures and options are also pricing considerations and offer the possible advantage of locking in a futures price, or minimum futures prices, without the commitment of physical delivery. A limitation is that the only remaining Canadian dollar denominated futures is for canola. U.S. dollar denominated futures are available for the wheats, oats, corn, soybeans, and the 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 up to $1,000,000 in total advances based on the value of eligible agricultural products to be produced or put in storage. For the 2024 program year, the first $250,000 of the advance is interest-free. Repayments of an advance are made as agricultural products are sold.
“The general recommendation is that no more than 50% of expected crop should be priced prior to harvest, after which volume and quality are better known. There are times when the 50% level could be exceeded, especially if prices offer income opportunities far exceeding one’s costs of production, and either a deferred delivery contract includes an 'escape clause' to protect against harmful effects of a crop production shortfall, or options on futures are used, which avoids a delivery commitment.”
Producers should either follow the markets and be able to recognize market opportunities as they arise or subscribe to a service that does so, explains Blue. Following harvest, consider using the Canadian Grain Commission’s Harvest Sample Program to obtain an unbiased estimate of base crop grades. Those grades can be a useful reference in dealing with buyers.
“Then, continue to shop the market for the best available farm gate prices, again considering profit levels, market outlook and cash flow needs. Finally, as time passes through the crop year, ensure safe storage of remaining crop to maintain grade characteristics,” says Blue.
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