Rimbey farmer Greg Service avoided the worst of the winter’s grain backlog. Although you couldn’t call him lucky — half of his acres were hailed out last year.
“We got paid out by hail insurance, so cash flow wasn’t a big concern,” he said. “Mother Nature did my marketing for me.”
So far, this year’s crop on his 3,200-acre operation (half is custom farmed) is doing well, but Service remains hesitant to pre-sell his crop until he has a firmer handle on what his production will be.
“That’s my risk tolerance, I guess,” he said.
“All the elevators here are relatively close to the port, and the closest in some cases,” said Trevor Cox, an employee on the 10,500-acre farm.
“So getting cars never really seems to be a problem in this general area.”
Still, they’re constantly watching the markets and looking for selling opportunities, he said.
“As per usual, they’ll try to lock contracts in at prices they feel comfortable with. If they can’t do that, they’ll just sit on that until prices come up to where they want to see them.”
The approach for both farms is typical of grain marketing in a normal year — but 2014 was supposed to be anything but. At the height of last winter’s gridlock, experts were predicting a huge carry-over from the record Prairie grain harvest was going to clog the system well into 2015.
Those views are moderating now, but uncertainty abounds.
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“Back in January, there was certainly more grain that had gone out of Alberta than had gone out of the other two (provinces),” said Mark Hemmes, president of Edmonton-based Quorum Corporation, the federal government’s grain monitor.
“But in the time since then, there’s been so much grain moved. The West Coast, for instance, has set about three records and beat them over and over again these last eight (to) nine weeks.”
Ottawa’s grain legislation in March — which ordered CN and CP to move 11,000 cars weekly or face fines of up to $100,000 a day — has had the desired effect.
“The railways are up against it right now,” said Hemmes. “They’ve got legislation hanging over their heads, and mandates what they’ve got to move, and they’re doing their utmost to make sure they meet those legislative and regulatory requirements.”
Despite record levels of movement, there will still be a large carry-out — which Hemmes now estimates will be around 17 million tonnes. But the elevator network is also ramping up and is currently running at about 50 per cent of its working capacity.
“That’s higher than what you would normally see in the summer, but it’s good,” said Hemmes. “Barring any major line outages, we’re going to see continued strong movement through the summer months. Once the harvest starts to come off, we’re all certainly going to see the country elevator network start to work itself up to the point we saw last fall. By late October or November last year, the elevator network was full. They’re going to buy as much grain as they possibly can.”
There’s also speculation that flooding — particularly in eastern Saskatchewan and western Manitoba — may also significantly reduce the size of this year’s crop. As much as four million acres may be flooded out and that’s on top of about two million acres that were never seeded because of the wet, cool spring.
But provincial crop specialist Harry Brook remains worried.
First, there will still be a lot of grain inventory come fall, said the crop specialist with Alberta Agriculture’s Ag Info Centre in Stettler.
“Even if they’re moving a million bushels a week like they were legislated to, there’s still going to be an awful lot of last year’s crop in people’s bins,” he said.
Second, while late-seeded crops in northeastern Alberta and much of Saskatchewan have lagged so far this year, there’s still time to recover.
“They might not be as high as last year, but I wouldn’t be surprised if we see yields that are higher than the long-term average,” said Brook.
Transportation is in the back of everyone’s mind, but it’s not easy to know what the future holds, said grain broker Shelley Wetmore.
“I think there are still contracts out there that were supposed to have moved some time ago,” said Wetmore, owner of Market Masters in Edmonton. “But it looks like everything is moving along and getting caught up. I don’t think we’re going to have the same crop as we did last year, but logistics are always an issue.”
Wetmore has pre-sold quite a bit, even though producers aren’t necessarily happy with current prices and aren’t doing a lot of booking in hopes of a price rebound.
“There’s always someone who will carry grain forward to the next crop year,” she said.
Some farmers may also hold back grain for next year, because they might have lost their crop due to flooding, she added.
That may not be a profitable strategy — the general feeling from buyers is that the market could go lower, said Wetmore.
“They’re not jumping forward and putting forth a whole lot of bids for the fall yet, because they’re still bearish on that front,” she said. “Generally, I don’t think we’ll see a deluge of fall pricing for a few weeks yet.”
So what’s the best strategy?
Brook says to remember what happened last year.
“There was a huge disparity between those who pre-priced their crop early in the growing season and those who waited until they had it in the bin before they sold it,” he noted. “The ones who pre-priced it got higher prices than the guys who tried to sell off the combine.”
Brook said he understands the reluctance to sell a crop before you know how big the harvest will be. But producers need to look past the farm and think about “the whole chain” that moves grain from field to port, he said.
“I am really wondering what is going to happen to prices this winter,” he said. “There’s a strong possibility of our crop prices slumping further.”