By farmathand

This is a guest post by Brenda Tjaden Lepp, Co-Founder and Chief Analyst at Farm Link Marketing Solutions.

As farmers prepare to hit the fields, a few last-minute marketing decisions may be in order. Once the growing season is underway, it can be tough to keep on top of the markets, especially when the weather starts to play a role.

Depending on the short to medium term outlook (between now and harvest), some crops should probably be sold out right away, and some others might be wise to hold, unpriced, in inventories until after seeding. When looking ahead to new-crop, other factors besides the outlook come into play, like profitability and fall cash flow and movement requirements. Either way, here are some of the key indicators that we monitor to make grain marketing decisions in the spring.

Ending Stocks

By July 31st, the end of the current marketing year, stocks of grain will fall to their lowest levels since the previous harvest.

  • If ending stocks are low, i.e. below average and the previous year, prices can be expected to move higher.

  • On the other hand, if ending stocks have long been forecast to grow tight, and prices have rallied already through the winter, the market may have already done the work of ‘rationing demand.’ Once buyers switch out of a very expensive crop into cheaper substitutes, the market can back off until harvest.

Inverted Spot-Deferred Prices

At this time of year, a wide inverse (where the price for nearby delivery is above the price for fall delivery) presents a strong incentive to buyers to make do with whatever supplies they have, until cheaper harvest supplies come available. An inverse is a signal to the farmer to sell now rather than storing the crop. It’s not 100% always going to be the case, but the message is that growers will be penalized in the form of a lower price for waiting to sell.

  • However, when it comes to selling new-crop, it’s important to realize that an inverse can work in either direction. Tight ending stocks and inverted spot/deferred prices will keep the market sensitive to weather and yield potential throughout the growing season. If there is a problem, new-crop prices tend to rise towards old-crop values to correct the inverse. For this reason there’s sometimes less urgency to forward contract new-crop when there is a steep inverse, at least until the crop is safely planted and yield potential looks decent.

Quality

Especially in cereals and pulses, when the previous year’s harvest turns out a variable quality profile, marketing becomes trickier. Depending on end user tolerances, it makes sense to ship the high, medium and low-quality supplies at different times of the year.

  • When the crop is overall poor quality, buyers have to scramble at harvest to secure the right grades to meet previous sales commitments. This creates a sudden surge of demand, which tends to deplete the high-quality supplies very quickly. Later on in the year, the trade shifts to medium-quality, as much as buyers can substitute different grades. As a result, quality discounts tend to be worst at harvest in a poor-quality year. Likewise, the premiums for the best-quality cereals and pulses in a low-quality year are highest at harvest.

It is always the case that grain marketing decisions work out better when a few basic pieces of information are factored in first. The quality of remaining inventories, bids for spot and deferred delivery, and the forecast for the carryout are all going to have a significant influence on price direction for many crops this year.

About Brenda Tjaden Lepp

Brenda co-founded FarmLink with her husband Mark in 2003, and since then together they have pioneered a wide range of new initiatives to help farmers get the most in marketing their crops. She is a firm believer in the science of market analysis.

Brenda started her career in research and merchandising roles with several multinational grain companies, and most recently has been focused on navigating the new open market for wheat and barley on the Prairies, on behalf of hundreds of individual farm clients. Brenda holds a BSc. and Master’s degree in Agricultural Economics and in her spare time enjoys gardening and many other outdoor activities with her family.






Request A Free Demo

Get a full demo of the tools available in Farm At Hand Agronomy and learn how they can make helping your clients easier. A member of farmily will reach out to schedule a time that works best for you.