One price risk management tool available to growers is storage. When market conditions result in what growers believe are unacceptable prices, and with poor basis levels, storage can be used as a marketing tool. To summarize, when futures are strong and basis levels are narrow/strong, it is a sell signal. When futures are strong, but local basis levels are wide/weak, it is a sell futures signal, but do not commit to a basis level. When basis levels are narrow/strong but prices considered poor, it’s a signal to sign a basis contract or deliver grain to capture the basis, but also buy futures to capture the expected upside.
In these times when returns have been very attractive, growers have been able to meet their financial commitments, taking advantage of growing crops they are very familiar with (wheat/canola) while getting good returns. Bills have been paid, and farms have been expanding. However, rotations have been stretched, and everyone knows that these good times are not going to last forever.
As mentioned earlier, storing a crop to wait for a better price is a risk management tool available to all growers. In these times where returns are good, one may consider using storage as a “long-term” risk management tool. Under these economic conditions, where there may be a penny to be made farming, growers may want to consider diversifying their crop base, grow a crop that is NOT “in vogue”, and storing it, if necessary, as a potential future “cash” crop.
In Alberta, one would consider traditional crops to be wheat, barley, canola, oats and peas. Other crops though, can be grown; and many probably have been grown on your farm sometime in the past. As long as the crop is storable, one may want to consider growing it, storing it if necessary, and hopefully, capture a strong price sometime in the future.
Diversifying can allow growers to rediscover management practices they may have used to grow these crops years ago, or give them experience in growing these crops for the first time. With farm expansion and the increased use of bags for storage, more and more “smaller” grain bins are now available for storage. If a new crop is grown, and price levels at harvest are not as expected, store!
Some crops can be stored for a very long term, such as legume seed (clovers), while others have very limited storage time (canary seed, which should be sold the same year as production). Crops which have had very good price quotes in the past, and which are very storable include: mustards, faba beans, various grass seed crops, clover seed, lentils, flax, and chickpeas. Even more obscure crops such as borage, safflower and such can be stored, but may have to be monitored more closely. Of course, there is a cost for storage. In addition to lost interest incurred waiting for a better price, other major costs could be losing a portion/all of the product due to storing the crop in an unacceptable “storable condition” (i.e.: too high moisture content) or storing too long (seeds with oil content).
Many companies have buyers familiar with these “other” crop choices. Get market information from them, both present and future. Next spring may come sooner than you think. Be prepared if our traditional markets collapse. Who knows, you may diversify and grow one of these “other” crops, and NOT have to store!
Created July 30, 2013 | Category: Industry