Grains this morning were able to make some gains on short-covering and more weather headlines scaring the bears away. Drew Lerner of World Weather Inc. says that the longer it takes for El Nino to dissipate, the likelier that we’ll see a drier spring in western areas of the Canadian Prairies. Conversely, Lerner suggested that when La Nina does make landfall, it will likely result in wetter conditions in Western Canada but drier conditions in the US southwest. When will the exact shift of El Nino to La Nina happen? Flip a coin.
While that weather debate rages, prospects for the South American soybean crop continues to increase with continued non-threatening weather, and with currency effects helping maintain the height of domestic prices, Brazilian 2nd-crop safrinha acres are likely also increasing. More wheat bulls are looking to Europe for the condition of the winter crop there, with concerns for winter hardiness the loudest in Ukraine, Poland, and parts of Germany and Romania. In my opinion, this headline continues to be best possible catalyst to a bump in prices, but it’s be tough for us to see more than 10 Per cent gains.
We’re at the time of the year where the hope that the markets were going to go higher before road bans has turned to frantic concerns over moving something before and/or during Plant 2016. With grain prices subdued, there were opportunities to take advantage of over the past 2-3 months on various crops (whether it be locking basis or straight cash sales) but many were speculating, not managing risk. Risk management doesn’t mean you’re selling your entire bin yard in these opportunities, but instead adapting your expectations versus just being greedy. This means knowing for certain what your cashflow needs are going to be in the next 6-9 months and then add 10 Per cent to those numbers just as a cushion. How many times have you wished you would’ve sold at least something (i.e 10 – 20 Per cent) after the markets went down and then you were forced to sell something for cashflow reasons? (Psst: remember the line “Make sales when you can, not when you have to!”)
Conversely, if the markets do go up, you’re not kicking yourself for selling everything in a rush and still have something left sell! This is what we call risk management. Adaptability in these current grain markets is the name of the game and I challenge you to sit down over the next few weeks and review your plan for not only your remaining inventory but also expectations for the 2016/17 crop. This should technically be done quarterly, if not on a monthly basis but if you don’t have a plan yet, put pencil to paper ASAP, and look to move 10 or 20 Per cent of what’s left in the bins. We’re happy to help you price it on FarmLead.com but flipping a coin is not hedging your price risk exposure to the market very well.
To growth,
Brennan Turner
President & CEO | FarmLead.com
Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and mobile grain marketplace (app available) that has moved almost 150,000 MT in the last 2.5 years. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).