Weather has certainly been the roundtable discussion this crop year. Too much rain, too little heat and a dose of frost have teamed up to make grain quality a thing of the past. But if producing the crop felt like the first battle, selling it may prove to be a second.
When going into this battle, you must be prepared. You need every weapon and resource at your disposal. When attempting to maximize returns on low-quality grain, not being well equipped and prepared is not an alternative. It can take a toll and reduce the odds of your success.
Read Also
Riding the tariff rollercoaster
Farmers are accustomed to roller-coaster years. But the current geopolitical windstorm is something else entirely. On his cattle operation near…
If marketing low-quality grain is your battlefield this crop year, your weapons for success are your marketing strategies. When weather does take the shine off crop quality, here’s advice on how to make the most from lower quality product.
Grading can be a bone of contention. With less top-quality grain around, the ability for grain buyers to blend to higher grades is diminished. This means it’s time to shop your grain around. As an example, submit wheat samples directly to a flour miller for assessment. You might get a break on grading if you spend the time and effort shopping your samples to several buyers.
Also, keep this marketing rule-of-thumb strategy in mind. Try to move your lowest-quality grain and oilseeds first. It’s simply a lot tougher to move poor-quality grain. There are fewer buyers. And by moving your poorest quality and working toward moving top quality through the crop year, you are maximizing delivery opportunities. Lets look at an example.
Let’s say frost cut into your barley bushel weight. A portion of your barley now only weights 45 lbs. per bushel while feeders typically demand a minimum 48-lb. plump barley. Heavy discounts can apply for light barley delivery as there is simply less usable feed energy. It is now time to check your delivery alternatives.
By moving lighter barley to the Canadian Wheat Board, you may sidestep steeper open market discounts. The board is more forgiving when it comes to export barley weight. But board PROs may dictate the floor price of the open market. In other words, during shortages of high-quality feed, you can often net better returns in the domestic feedlot market. But the board may be an outlet for lower-quality barley. Open market returns generally outperform the board for 48-lb. plus barley, particularly in more concentrated feeding regions. But let’s take this one step further using the futures market.
Specifications for Western Barley futures call for 48-lb., dry barley. Consider replacing your light weight or poorer-quality grain sales with better-quality paper. For instance, lets say you price and move your light barley. By replacing it with Western Barley futures, you are effectively upgrading your 45-lb. barley to 48 lb. on paper. This strategy has a number of benefits. The lower-quality delivery problem is solved. You receive cash flow from cash sales to meet living expenses and/or bill commitments. And your product is upgraded on paper. This allows you to better participate in a market rally should one occur later in the crop year.
But a word of caution. The Western Barley futures are now a thinly traded contract. Liquidity is a concern. It’s advisable to work with a qualified risk-management commodity broker.
Remember, should a market rally, top grades always have the upper hand and better price potential. Lower grades typically follow, but at a widening discount. In a rallying market, off-grade basis levels tend to weaken or widen further. Off grades don’t follow the strength of a market rally as well as top grade product. If you have good-quality grain in the bin, this product will follow the strength in the futures market much better than an off grade.
Here’s another example. The fact you grew thousands of bushels of feed wheat doesn’t mean you have to stay in the feed wheat market for the entire crop year. If you make delivery and pricing of your feed wheat a priority, you could replace these cash sales with higher-quality Minneapolis spring wheat. Again you are upgrading your product on paper. This is still price speculation, but you have increased your odds of price success by increasing crop quality for the market ahead.
Loading a producer car will also save you at least the cost of elevation. In years when feed bids are low, the time spent loading a railcar can improve your percentage net return substantially. In fact, loading railcars may pay you the equivalent of a lawyer’s hourly charge, yielding a solid return for the extra effort.
Even though mother nature has thrown a curve ball at Western Canada this year, there are some ways to lessen the blow of low-quality grain. Make movement a priority. Consider replacing and upgrading with paper, if you feel these markets can strengthen in the months ahead. Shop your samples and stay tuned to the market outlook. These are all weapons of choice in the low-quality grain marketing battlefield.CG
Errol Anderson is a commodity broker and author of the daily farm risk management market report “Pro- Market Wire.” He can be contacted at 403-275- 5555 in Calgary or email: [email protected].
