Business | Spring 2009
Get over 2008. You’re in a new marketing year.
By Joy Gregory
Aa he looked back to last July when soybeans peaked at $15.91 a bushel, grower Leo Guilbeault was more amused than annoyed. Long before the price spiked, the Ontario Soybean Growers chairman forward contracted about 50 per cent of the 2008 crop planted on his 1,700-acre farm near Windsor, ON. So when that price held for less than an hour, Guilbeault wasn’t concerned about what he’d missed; he was weeks away from harvest and already confident his crop was going to make money. “That price was pretty much double what we were getting in 2006/07 and it would have been nice. But thanks to forward contracts, we’re always in a cash-flow situation.”
Guilbeault’s story illustrates why market-savvy farmers can relax when others are sweating dollar signs. And the lesson is simple: when it comes to marketing agricultural commodities in turbulent economic times, smart farmers look ahead, says Gary Pike, CEO of the agricultural consulting firm Pike Management Group (PMG).
Markets will remain volatile through 2009, predicts Pike, whose clientele typically farm 5,000-plus acres in western Canada. But market forces will prevail after the next 12 to 24 months, he predicts, since the global supply/demand situation for food commodities remains tight. “As farmers cut back production to hold costs down, I can see no increase in supplies over the next two or three years. Once we erode supplies, demand will push prices back up.”
But what can Canadian farmers do in the meantime? For Robert Hall, who farms near Deloraine in southwestern Manitoba, it’s pretty much business as usual. While he admits the 2008 market was fraught with more highs and lows than expected, Hall wasn’t all that frustrated when canola prices collapsed in the middle of harvest.
Like Guilbeault, he’d already priced part of his production at levels that met his cash flow needs. “As a farmer, I haven’t got time to be watching the markets and in 2008, specifically, those markets collapsed when we were at our busiest. I can’t think of one farmer who said, ‘I’m stopping the combine and I’m getting into the office so I can make sure I get my canola sold before the price drops any lower.’”
Call it hope or call it greed, the nasty truth behind the steady rise and dramatic decline of last year’s ag commodity prices is that few farmers sold crops at the peak. They were holding out for higher prices. “There’s an old rule of thumb that says 10 per cent of the crop will be sold within a dollar of the high and 90 per cent will be sold within a dollar of the low and I don’t think that’s going to change a bit over the long run,” says Pike.
His big tip for 2009? Get over 2008. “A lot of guys are going through a grieving process. Now they need to get organized for 2009.” That means identifying where to park your business combine. There are farmers who optimize production and adopt a marketing plan based on profitable sales; farmers who optimize production but lack a marketing plan, and farmers who don’t have a production or marketing plan. While most farmers are likely in the middle category, they should look for ways to move into the first group. That means locking in returns on investment instead of chasing markets, says Pike. “The guys who don’t want to miss the last 50 cents are going to lose.”
Guilbeault and Hall, who work with different marketing consultants to help them optimize returns, echo Pike’s assertion that marketing “starts with what goes in the seed drill.” For Guilbeault, that includes taking advantage of IP premiums for soybeans. For Hall, it means going after malting barley prices. And for both, it means crop decisions based on the old-fashioned agronomics that optimize yield. In Hall’s words, “I pay someone to help me find good markets so I can put my expertise into growing the crop.” FF
