Profit hunting closer to home

THE POWER OF LOCAL MARKETS

ONE OF THE most valuable lessons Ontario grain farmers might take away from marketing grain in 2017 is not to underestimate the influence of local markets. This was where some marketers found some of their greatest profits last year.

Where this was most clearly demonstrated was in small grain markets. Typically, there isn’t much change in oats, barley, or mixed grain marketing strategies year over year. Ontario does a pretty good job of supplying the market what it needs, and the market tends to provide some consistent prices in return. But, that all changed with a corn surplus in 2017.

SURPLUS

When we went into harvest, we were storing almost too much corn. That’s the thing about major agronomic impacts which happen well in advance of harvest; grain buyers had plenty of time to anticipate a supply shortage and get their own stocks in order well in advance. I was amazed to have more old crop corn offered to me in October 2017, than any of the 10 years that I have been in marketing. The market had just really overcompensated. Even after almost two successive crop failures in many areas, the market place was worse than ever for these farmers.

It just goes to show, there is no guarantee that prices will rise in a crop failure.

However, the corn farmer’s loss turned out to be the small grain farmer’s gain while all of this was developing. Small grain farmers went into the planting season knowing there was a surplus in the market. Many responded accordingly by cutting back acres, or simply choosing not to grow any oats or barley altogether. Combined with a wet spring, that added up to some superior prices compared to corn. Once again, we saw a major price fluctuation swing from a discount to a fairly big premium all within the same year.

And what that means for 2018 is a potential opportunity to sell those crops in advance.

THE YEAR AHEAD

I’m more optimistic than ever that we might get some ability to contract acres in small grains, especially if farmers get those contracts in place in time for planting season. There’s a real risk we might see the market swing back in another extreme fluctuation if everyone jumps in too far and grows more acres than the market can handle. Let’s not forget, the demand in this market is particularly inelastic, and we can’t just put a surplus onto vessels in the harbour. But, we could also see it take more than one year to fulfill the shortage that developed by the fall. Easy as it is to get in the habit of not planting small grains when nobody’s offering an incentive, now that the incentive is there, you should evaluate your selling options wisely.

The same goes for the incentive that was lacking in the corn market when many growers were making early seed purchase decisions in the fall. Remember how we had a surplus of corn back in the 1990s? Back then, we would have to feed that surplus one mouth at a time basically. But Ontario’s export capabilities have ballooned now, and we’re not exactly doomed to the same fate.

The problem is, our ports are only open until December and they won’t open again until the spring. I wouldn’t be optimistic about corn prices until we see the ports open again. It’s going to take clear through until March for us to deal with that surplus. With the way things were in late fall, May is when I’d start to be optimistic about corn again.

Practice patience with your marketing plans this year. When we make our marketing plans, we should only use the information that seems like it is reasonable at the time. We don’t want to start making marketing plans with 80 year droughts in mind, or disastrous flooding, or even political factors like a potential breakdown in NAFTA negotiations. These things happen once in a generation. History tells the impact of these events is not nearly as frequently significant as you might be lead to believe by reading the news.

Instead, be aware of the position your local buyers are in. Get creative about your selling arrangements and capture the opportunity that’s out there if you’re willing to look a little closer to home.

Jeff Robinson is a grain merchandiser for Woodrill Farms Ltd.

About Jeff Robinson 3 Articles

Grain Merchandiser, Woodrill Farms

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