Producers can manage price risks in a volatile market

Weyburn Farm Update forum

Grain and oilseed producers have the means to manage the ups and downs of prices for their commodities, farmers heard in a presentation at the 2020 Weyburn Farm Update on Friday.

John DePape, from Farmers Advanced Risk Management Company, spoke about how farmers can use basis or futures, depending on what they want to do with their grains and oilseeds, and suggested different ways farmers can approach the selling of their products.

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“Basis is a good reflection of grain moving through the system,” he said, noting that farmers can start with futures, which is the number one way to sell grain.

One of the tactics he has done with canola is to sell some of it every month and lock in the basis price.

Showing a graph of the price levels throughout the year, DePape showed how this practice leveled the prices that farmers could get, avoiding extreme highs and lows of the prices through the year.

He noted that, for example in 2017-18, there were maybe 20 or 30 days in the year when a farmer could have done better by selling on those specific days.

“I’m not telling them when to deliver. I still think June and July is your best bet,” said DePape. “I also throw in options if we’re selling something during the year.”

Showing the graph for the 2018-19 crop year, he said, “We ended up with a better net price than you could’ve had all year. In February, things weren’t moving and stores were building up, and guys hadn’t delivered very much, so that would put pressure on the system.”

For the 2019-20 year, DePape said, “I don’t know where we’re going to go. If we closed everything right now, we’d be down.”

For other crops, he added, “There’s not much you can do except sell a little bit each month. If you can go with incremental selling, you can catch that price premium. Unfortunately with durum, there’s nothing you can do.”

Basis is the “bread-and-butter” for grain companies, said DePape. “We need to understand how grain traders look at the market.”

In regard to this coming year, he said, “I don’t have a crystal ball. I don’t want to tell you to sell at $480, and then there’s a weather problem and prices go up to $600.”

DePape also commented that in his opinion, target price contracts can create problems for the producer.

“A target looks good when it’s high, but if it doesn’t reach that target, then it’s worthless,” he said, adding, “I’m really not a fan.”