If a farmer knows his cost of production, he should find some profits looking ahead to 2018.
Those were the two messages those attending the Farm Fitness and Finance Forum at the Grain Millers Harvest Showdown heard from speaker Stan Jeeves.
Jeeves, a Wolsley area producer began his talk on market forecasts telling those in attendance it was paramount to know their cost of production on any crop.
“It’s key to marketing,” he said, adding it was Henry Ford who said “no one ever goes broke selling for a profit.”
However, a producer can’t achieve a profitable sale without knowing what he must sell a product for to cover his cost of production, said Jeeves.
Jeeves went on from that point to note futures contracts can be a tool in achieving that profit, but they are only an indication of future market process based on the day they are purchased.
Futures “work on the best information available today.”
When looking ahead at future prices they can indicate some anticipated market moves, said Jeeves, reminding supply and demand usually have an influence.
“Low prices increase demand,” he said, adding the opposite is also true with high prices limiting demand.
And futures try to level markets somewhat.
“Futures are a balance of buy and sell orders,” he said.
Jeeves said producers need to watch the futures markets for indicators of what may lie ahead.
“When prices go up as time goes by,” it’s a carrying market, and is an indicator “for you to carry some (product) forward.”
If nearby futures are the highest value it is an inverted market.
“You sell through an inverted market,” said Jeeves.
In terms of specifics, the canola futures show month-to-month which offer opportunities to sell through the months ahead, said Jeeves, but he added not to carry product too far.
“You shouldn’t carry canola into the new crop year,” he suggested, adding “the market believes there will be more canola around next year than this year.”
Jeeves isn’t in agreement on that expectation though.
Much of the southern Prairies in Canada have been dry through 2017, and the likelihood of that region producing big canola acres in 2018 is not good, he said.
“If I can grow an average crop at best I’ll be lucky,” he said of his own farm.
Jeeves also noted the number of acres in canola in 2017 was a record, and with the dry conditions in the fall in many areas, the number of acres is likely to decline too.
Another market factor to watch is the Canadian dollar. It has lost five per cent since September, and that amounts to about $25 per tonnes.
“Economists all say the Canadian dollar is going to continue dropping,” he said.
But, again Jeeves is not so sure. He pointed to the recovery of oil prices to the $52 ranges, and the suggestion the Canadian dollar is often tied to oil prices, and factoring that in Jeeves said there is a good chance of an upside to the Canadian dollar. There are of course some wildcards in terms of the dollar too.
If the current negotiations over the North American Free Trade Agreement were to fall apart, or Canada does poorly in a new deal, it would be bad for the dollar.
The dollar rebounding would also be a two-edged sword in grain sales.
“A stronger dollar will be negative for us commodity guys,” said Jeeves.
International wrangling can impact a canola market too.
“There are concerns over potential trade with China overs GMOs,” said Jeeves.
The impact of United States president Donald Trump and where he might go in terms of biofuels is something canola producers need to be aware of. In the US a big chunk of the soybean crop goes into biodiesel and if that market was lost would reflect in the prices of canola.
