WESTERN PRODUCER — Farmers looking to hedge against fluctuations in the market have a dizzying array of possibilities.
According to management consultants at StoneX Financial, there are ways to best develop a rock-solid grain marketing plan that fit with an operation’s goals to maximize hedging while tracking expenses and providing structure.
“Even a bad plan is better than no plan,” Natalie Benjamin, risk management consultant at StoneX based in Calgary, said during a recent webinar hosted by Farm Management Canada.
“At bare minimum, mapping out that plan gives me the time to look at things I want to avoid, and I always keep in mind that it doesn’t need to be perfect, it doesn’t have to be good right away — you can always tweak it — but you have to give yourself something to aim at.”
Developing a plan comes down to some key elements, added Craig Turner, also a risk management consultant at StoneX Financial, based in Chicago.
“It all comes down to how are we going to sell, when are we going to do it, what kind of methods do we want to follow and what’s the information we need to be able to do that and what are the tools and resources then that we can provide,” said Turner.
Finding price targets can be difficult with variable — and currently rising — input costs driven by domestic and international events.
“Prices can be a moving target but your margin, if you know that, it’s pretty hard to make a bad decision if you are making a profit,” said Benjamin. “Having that mapped out is a big step in that decision making process.”
Part of that is setting expectations, she said, and determining what’s a reasonable profit, a bigger than expected one as well as what would qualify as an extraordinary price that would drive a farm to sell everything in storage.
“It sounds like a foolish exercise but when we get years like we had last year where prices skyrocket to that insane margin, that’s where our fear and our greed and our emotion gets the better of us,” said Benjamin.
But having a plan in place to deal with whatever eventuality comes into play will better position a producer to act, no matter what variable comes into play, she added.
The seasonality of markets, available storage and cash flow of a farm are all factors in developing a marketing plan as well as to avoid having to sell at inopportune times.
While finding the sweet spot in marketing the previous year’s crops can be easy, the 2023 crop is far from certain as input costs continue to rise for chemicals, fertilizer, seed and energy.
There are options that producers can explore with software that is developed to take all these considerations into play and help determine margins, said Benjamin, which can be adjusted as prices change.
Canola, corn, wheat and soybeans are poised to move, said Turner, with additional acres coming online in North America, which, if they produce to their potential, will move the markets.
The western Canadian drought in 2021, war in Ukraine and weather issues in South America have all spurred more acres to be planted and must be considered if a farmer has an eye to the futures markets.
“High prices bring out the acres and eventually you do get a couple of good crops in a row and prices just go back to normal,” said Turner.
For those looking to understand the markets better, brokers put out a lot of easily accessible information regarding forecasts and there is always the option of hiring someone to assist in navigating what can be the choppy waters of the open market.
Benjamin and Turner stressed that if a producer is going to hire an adviser to help manage a plan, there needs to be an understanding of objectives as well as risks, trust and a tight relationship to get the most out of a strategy.