What to do when crop prices are volatile

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Source: Government of Alberta

“The crop growing period of market action is sometimes referred to as the ‘silly season’,” says Neil Blue, provincial crops market analyst with the Alberta government. “Dryness in both the Canadian Prairies and U.S. corn/soybean belt plus intensified Russian attacks on Ukraine grain export structures have caused a crop market price rally. Adding in the influences of the speculative trade results in an extremely volatile market. What can a producer do in this situation?”

First, Blue says producers should review their cash flow situation at least 2 or 3 months forward. What farm and personal expenses and what loans will require payments? What amounts from sources of cash inflow, be it product sales, other income, or loans will be available?

“The federal Advance Payments Program (APP) is a loan source to consider for cash flow needs,” says Blue. “Using farm commodities as security, the APP can potentially provide up to $1 million as an advance, with the first $350,000 of the advance interest free during this year. With a current chartered bank prime interest rate of 7.2%, the interest savings of accessing the APP advance can be significant.”

As crops mature, it becomes easier to estimate yield outcomes; but quality may be more difficult to assess. Often, but not always, crop pricing opportunities are the best for the crop year during the growing season. The multiple uncertainties affecting crop markets this summer leave the best price of the 2023-24 crop year more uncertain.

“If yield and quality prospects are favourable, then committing to a modest level of sales at currently attractive prices is a defendable decision. If crop yield is being reduced by dryness or other challenges, then a conservative approach is likely best.

“The difficulties from overcommitting crop sale deliveries prior to harvest in 2021 are still an unpleasant memory for many producers. Those buyers with an escape clause in a contract provide comfort to the seller. Otherwise, for those producers with a futures trading account, using a product such as put options can provide price downside protection from the potential risks of a delivery commitment to a specific buyer,” says Blue.

For more information, see:

Agricultural Marketing Guide