As farmers contemplate a multitude of variables heading into this growing season, crop prices are favourable, indeed.
Favourable does not mean stress-free by any means. With commodity prices hovering high for numerous crops, many farmers have yet to pull the trigger on locking in prices with the optimism and hope that those numbers will continue to climb, but how far do you push it?
To bend a phrase, with great opportunity comes great responsibility. Chip Flory, host of AgriTalk, says farmers now have to be — or have the opportunity to be — proactive instead of reactive with pricing decisions.
“We’ve got an opportunity to lock in a profit. It’s not like one day, we’ve got profitable price levels and the next day, we don’t. So, we’re trying to decide, ‘Is today the day to pull the trigger on things?’ Farmers have got an opportunity to make their price right now, to be active in their in their risk management – to actually be risk managers rather than price takers. And when that kind of an opportunity comes around, it only comes around when when you’ve got an opportunity to lock in a profit. And I think we’ve got that right now,” Flory says.
With many factors playing into the market prices, one large one being the Russia/Ukraine situation that is still unfolding, Flory shares what may be an optimal strategy for farmers who are contemplating how exactly to navigate these waters.
“For most of the analysts that I’ve talked with, their attitude is, ‘Let’s go ahead and get something’,” he says.
Risk management strategies start in the cash market, you set your price, and set your basis. “In other words, make a forward cash contract sale for this fall’s delivery or beyond most likely for this fall. And then reopen your upside potential with a call option,” Flory says. “Once you buy that call option, you know exactly how much you are risking from that point forward. Because the most you can lose is the premium that you pay for the call option.”
Pricing may not be the only thing weighing heavily on farmers’ minds: we could still see some producers make adjustments on what crops they will be putting in the ground this year. Tomorrow (March 31), the United States Department of Agriculture (USDA) Prospective Plantings report is set to be released, and acreage estimates for 2022 have garnered a lot of attention recently.
“The expectations are that we’re going to move a million and a half acres from corn to soybeans from last year’s final plantings. And I guess I’m not going to argue too much with that, at this point, get our corn plantings down around 90 To get our at 92 million acres, and get those bean plantings up to about 89 – maybe a little bit more than that. Spring wheat acres are something that I think we’re going to have to watch.”
Flory shares that he hasn’t heard as much enthusiasm for spring wheat as he has for other pulse crops and alternative crops, both of which may even take away from total corn and soybeans acres up in North Dakota and South Dakota.
The reports will serve as a starting point, Flory notes, but may not be the place where you want to hang your hat considering how much the market and circumstances can change within a 30-day time period.
There are still many variables that will affect the final numbers and commodity prices, some of which farmers haven’t had to consider in years past. This pointing to Ukraine and the uncertainty that lies ahead – only time will tell what crops will actually get planted in Ukraine and the domino effect that will ensue due to those acres.