“While there’s no foolproof system, I strongly believe incremental selling has helped those producers who employ it,” says Frank Backx from Hensall District Co-operative in southwestern Ontario. It elevates the average price because sales generally will be done on rallies in the market, not into declining markets.
Backx suggests breaking the crop into a minimum of five increments, with each increment roughly the same size. Then, depending on market prices versus cost of production, he recommends forward selling one to three increments and waiting to price the balance later depending on market conditions.
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Whatever the value of the proportions, with at least 24 months to market a crop usually some good opportunities present themselves, says Backx. “The main skill needed is discipline and having the confidence to pull the trigger when price objectives are met.”
Part of that is understanding the seasonality of the grain market. “Uncertainty breeds higher prices,” says Backx. “Look for pricing opportunities in these windows.” For example, markets react to seeding conditions, drought and frost.
However, if seasonal price rallies don’t occur, you may need to revise your target prices. “Marketing plans must be adjustable,” say Backx. “And they must be written down; otherwise it is too easy to change it without enough thought.”
“Bottom line,” says Backx, “incremental selling takes some of the guesswork out of a very tough job.”
In market 10 to 20 times
For canola and peas, Motiuk breaks his selling volumes into five to 10 per cent increments. By January, he has pre-sold about half of his expected canola yield for delivery right off the combine, and 25 to 50 per cent of his expected peas.
“The pea market is slowly maturing,” Motiuk says. “With peas you have to be careful (not to miss a pricing window) because the opportunities come and go.” The companies will call sporadically, depending on their sales, and there’s no futures market.
Proportional selling
Ian Lepp calls it proportional selling. “We manage our risk by averaging the price we get over a year,” Lepp says. He tries to pre-sell a portion of the crop for delivery off the combine, so they don’t get hit with poorer basis at harvest.
For their marketing plan this year, they pre-sold 50 per cent of their cereals, but less on canola and soybeans due to frost risks. “Although we’ll sell up to 50 per cent of expected production before harvest some years, often we’ll sell less on some crops,” says Lepp. “Especially this year, for weather reasons.”
This year before seeding, they had about 25 per cent of the crop priced. Once it was in the ground, they had sold 50 per cent, Lepp adds. “It seems that in June or July we get a weather rally and we try to sell into those times of the year.”
Lepp takes into account cash flow and storage issues when deciding how much and when to cash sell and pre-book.
Once in the bin, sales depend on cash flow needs, he says. “Sometimes we’ll try to sell it three or four months ahead to take advantage of the carry in the futures and basis market.
“Usually we have a lot of it moved out by the next harvest but we’ve had some crop in the bins for a year and a half, if we’re in the middle of a rally.” Normally, they try to limit storage time to limit the risk of spoilage.
