Pricing new crop in hot market can be a tricky venture

It sounds like a good problem to have but figuring out how and when to price new crop during a volatile bull market is causing lots of stress for many farmers.

The challenge is compounded by risky crop production situations, especially with a heat wave hitting as canola crops flower and wheat crops head out. It’s hard to feel confident locking in sales for large amounts of new crop when the size of that crop is in doubt.

Some farmers are not worrying about it until they have a better idea how much of a crop they’ll have in the bin a few months from now.

Worrying about the market when you don’t know if you’ll have a crop doesn’t make sense to them.

But others know today’s high prices are a great opportunity and don’t want to pass them up.

Lots of farmers priced some new crop production in spring, as they always do, to cover off-the-combine sales and cover cash flow needs for the early fall. Beyond that it gets tough.

Some have evolved customized approaches that provide direction in marketing decisions mid-season, and also enables them to counteract their own tendencies to become paralyzed, or to price too much.

I had an interesting discussion on Twitter with a number of farmers about this topic on June 25. It’s worth checking out, just to see how a few farmers handle this tricky situation.

It’s hard to say whether farmers’ decisions have been helped or hindered by the strength of prices and the recent selloff and rebound. Some have held off from pricing now because of bad experiences selling last fall and winter and seeing most of the bull market pass them by.

Others can’t bring themselves to sell when prices are falling, or when they’re rising. When things are volatile, like today, many just don’t know what to do.

Analyst Mike Jubinville of MarketsFarm addressed this situation at an Ag in Motion outlook forum.

He sees lots of reasons to be bullish about new crop markets but thinks there are solid reasons to do some pricing today.

American and Canadian crops are under a lot of heat and drought stress. There are problems in Russia and Kazakhstan. But canola also tends to peak in June and seasonalities can matter.

I remember the 2012 rally and all the speculation about how high that could go. Some thought prices would continue to rally into October as the damage to the United States soybean crop became more and more obvious.

Two market historians pointed out to me that Midwest drought rallies tend to peak in early August and then decline, despite falling crop estimates after that point, and so it turned out. The rally turned long before the crop stopped declining.

The market adjusts.

Trying to guess where this rally is going is a cottage industry for market watchers, but the speculation does little to help farmers.

For those who are worried about risks to their own crop production but don’t want to ignore this historic rally, there are various mechanisms that can be used, but none are perfect. There are lots of professional marketers and advisers who can help.

Hopefully, people are listening to their advice. A lot of farmers became annoyed by following advice last fall to lock in prices in what turned out to be only the early stages of the rally, and that experience has soured some people. But it’s hard to blame anybody for missing the extent of the 2020-21 rally. Few saw it coming.

There’s no perfect way to play any rally. Somebody will get lucky. Lots of people will be unlucky. For most, it’ll be a mix of good and bad luck.

And for most farmers the business of growing a crop makes these vexing questions about marketing very much a secondary concern.

That, in the light of the impossibility of predicting this market, is a blessing.