Tuesday, June 24, 2014

Weather related crop pricing opportunities

C. Davis photo
Alberta Agriculture and Rural Development Agri-News

(June 23, 2014)

An Alberta Agriculture specialist says that this time of year can bring weather-related new crop pricing opportunities.

“June is here, most of the seeding of North American spring crops has been completed, and farmers are now into weed control and crop monitoring activities,” says Neil Blue,market specialist, Alberta Agriculture and Rural Development, Vermilion. “Typically, during the growing season, there is some premium to new crop prices in case of a widespread production-reducing factor. In our world crop market, such a production scare or reality could develop in any major production area of the Northern hemisphere. Weather is the biggest production factor and, currently, crop conditions in major growing areas are very good.”

Despite good growing conditions now, and forecasts for adequate or increasing stocks of world wheat, oilseeds and feed grains, Blue says price volatility is likely to increase as weather concerns arise during the summer.

“The market reacts to weather forecasts and weather events as market participants try to assess potential for weather’s effect on crop production. Some people blame the speculators for this kind of volatile price activity. From a producer’s perspective, speculators can be a friend or foe. Although speculators often enhance a price move, they are vital to market liquidity and, ultimately, physical supply and demand factors will determine price. Remember that price volatility means risk and opportunity. Users of feed grains, for example, can be given opportunities to lock in relatively low prices for feed on price dips, while grain and oilseed producers can benefit from a spike up in price. These weather-related price moves during the growing season can provide the best pricing opportunities of the year.”

Even during the busy seasons, crop producers should be in touch with the market as these opportunities are often short-lived, says Blue.

“There are several ways to capture price opportunities, but placing target price orders directly with buyers can work very well. These orders would be based on target prices, which come from the farmer’s calculation of production costs, their expected yields and their market outlook. A challenge to forward pricing directly with a buyer is the concern of a production or grade shortfall, unless that buyer offers an ‘act of god’ clause to provide an ‘escape’ in the case of a legitimate production shortfall. Alternatively, for those crops that have an active futures and options market, using those pricing tools offer the advantage of flexible pricing of the futures component of price.”

Blue says that during these busier times of year, it can be a real challenge to stay in touch with the markets.

“Many farmers hire a marketing firm and subscribe to market information services. Alberta Agriculture and Rural Development’s website contains a list of market information sources. Many of the subscription services offer a free trial period to check out the service before subscribing. Most farmers follow market prices by listening to the radio reports and reading farm publications. Several grain buyers provide Internet and phone accessible information. Active use of these market information sources and following your marketing plan can help catch weather-related price opportunities as they arise.”

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