It’s a common characteristic of successful farm marketers to have moved past the notion that marketing is all about selling the whole crop at the year’s highest price. Selling, or storing, the whole crop at once is just too risky, because markets are so uncertain. At the same time we’ve realized that just trying to ‘pick the tops’ ignores internal management issues unique to each farm that are also important factors behind day-to-day marketing decisions.
Maximizing the profitability potential of an individual farm operation hinges heavily on the operation’s crop portfolio, as well as other factors like cash flow needs, storage issues and costs. Time and time again, we see that what is a good day for one farm to sell a particular crop won’t be for the next, depending mainly on what else it has for sale.
Not only does each crop have relatively different odds of rising or falling over the course of a farm’s marketing window, different market structures offer very different pricing and risk management tools. To what extent an individual farm is able to make use of each one can greatly impact its whole-farm risk, a much more important consideration to profitability than the absolute price of any one crop.
Managing the whole farm’s price risk requires much different thinking than ‘the Wheat Board is taking care of me’, or ‘I manage price risk through hedging’, because neither of those mechanisms does the entire job on its own. In recent years, and especially over the past few decades, the production mix in western Canada has become much more diverse and the process of maximizing farm-wide profitability has become more intricate as a result.
In terms of farm price risk management, consider the fact that the portion of crops tied to futures has only been about a third of all production in the last decade, yet agricultural marketing texts still focus almost exclusively on hedging for price risk management. Meanwhile, the portion of crops planted without a corresponding futures market has been rising steadily. The historic reliance of western Canadian farmers on the CWB for marketing has declined most significantly in recent decades and even within the portion of crops that are still marketed through the CWB, new pricing and risk management alternatives have developed, making decisions more complex.
Again, what this tells farmers interested in maximizing profitability is that there is no one magic silver bullet. The only reasonable approach is to learn about the different supply and demand factors, contracting options, risk management tools and marketing opportunities for each crop you grow. The good news is, not only are there companies like FarmLink well-positioned to help you in this task, it can make farming more fun and interesting, as well as more profitable, to get to know the different marketing systems available, and to dig deeper into what happens to your crop once it leaves the yard.