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As crop prices continue rallying at high levels, the upcoming growing season looks profitable for Alberta farmers. But provincial crop market analyst Charlie Pearson wonders how long the current price rally will last. He cautions producers to think about locking in some of the high prices they’re seeing — before profits slip away.

“I don’t think prices will fall through the floor. They should remain above average. But I think there’s a strong probability we’ll see a price correction of more than 10 per cent before crops are harvested this fall,” says Pearson.

Farmers around the world typically respond to high prices by planting more acres and growing more grain. “It’s a normal cycle. As long as growing conditions are good, the world will harvest bigger crops, and supply will catch up with demand — driving prices lower. We saw it happen last year with wheat. Farmers harvested a record world wheat crop, pressuring those prices down.”

Pearson adds financial problems overseas such as the European debt crisis could also impact crop prices this year.

Canola is leading the current price rally, soaring to $13.50/bushel at the end of March — up $2/bushel over last fall, says Pearson.

“Tremendous demand from China and strong North American demand for canola oil is fuelling those prices,” he explains. Yellow peas climbed to $9/bushel, while barley elevator prices held strong at about $4.25/bushel — an increase of roughly 25 cents over last year due to a smaller 2011 crop and strong cattle market demand. “Most crop prices are well above average. The exception is wheat, which remains at about $7/bushel for 1 CWRS because of last year’s record world crop,” says Pearson.

Input costs have also climbed, he adds. “So farmers need above-average crop prices to be profitable. It’s definitely a year when producers should consider using the forward-pricing tools available to them to lock in current high prices on a portion of their crop production.”

Price insurance deadline

Pearson explains farmers can sign deferred delivery contracts with grain buyers that lock in prices today for grain they’ll deliver in the fall. The Spring Price Endorsement (SPE) rider on crop insurance is another good tool to look at, he says, reminding producers of the April 30 deadline to apply for crop insurance in Alberta. The SPE protects farmers against price drops of 10 to 50 per cent between the spring and fall.

“Interest in the SPE is strong this year as producers look for ways to protect prices. But as always, weather uncertainty is the main reason farmers rely on crop insurance each year,” says Lorelei Hulston, provincial insurance manager with Agriculture Financial Services Corporation (AFSC), the Crown corporation that administers crop insurance in Alberta on behalf of the provincial government.

More than $109 million was paid out for crop insurance claims across Alberta last year — most of it due to excess moisture that flooded fields, causing production and quality losses, says Hulston. About $13 million was paid for unseeded acreage and reseeding benefits. Claims were also triggered by frost and drought conditions later in the season. Another $178 million was paid for hail damage under the hail endorsement rider on crop insurance.

Unseeded and fusarium policies

Following two extremely wet springs, Hulston says AFSC is increasing coverage for several crops under the Reseeding Benefit, and enhancing the Unseeded Acreage Benefit to recognize higher costs associated with both dryland and irrigated acres. “Based on client feedback, farmers will also no longer have to reseed acres to be eligible for the Reseeding Benefit,” she adds. “Farmers who seed crops that become flooded and can’t be reseeded may now qualify for both the Reseeding and Unseeded Acreage benefits.”

AFSC is also announcing new policies for 2012 governing how claims will be paid for fusarium head blight (FHB) and ergot.

“Starting in 2012, losses caused by fusarium head blight are only payable if clients have followed the guidelines on the testing and treating of seed outlined in the Alberta fusarium graminearum management plan,” explains Hulston, noting those guidelines can be found at www.agric.gov.ab.ca.

Under the new ergot policy, AFSC will no longer provide quality loss coverage for ergot because most seed-cleaning plants can now effectively clean the ergot bodies from harvested grain. “Instead, a cleaning factor will be applied to samples containing ergot. Production will be reduced by that cleaning factor, and if it triggers a claim, payment will be made,” explains Hulston.

Farmers who have questions about crop insurance should contact their nearest AFSC District Office or the AFSC call centre at 1-877-899-AFSC (2372) before the April 30 deadline.