Archive for October, 2008

Collect Your Grain Samples

October 27, 2008

Now that harvest is complete there is still some unfinished business. It is always best to collect your grain samples know and make sure that you have them graded to ensure that your broker or elevator agent has your grades on hand. This will allow you to take advantage of short term price spikes throughout the winter by making quick transactions.

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Cash is Not the Only Determining Factor

October 20, 2008

I had a great conversation today with a fellow farmer in Saskatchewan. We talked at length about the significance of the commodity prices hitting the floor boards again. Is the sky falling versus there may be some opportunities for those that do not panic sell. As I have mentioned before these are challenging times that seem where volatility is frequent instead of rare.

One interesting thing that came out of the conversation was that selling based on cash flow requirements is becoming less and less a mantra to live by in all situations. I think in the past farms sold their crop only when they needed cash flow and otherwise just left it sitting in the bin until the bin space was required other wise. And in a lot of cases if your bins were full you just bought more bins (this is no longer available an increase in steel prices and long setup times). Due to the increased volatility of prices you need to take advantage of selling your inventory when the time is right. Many farms missed out out on the last of great prices in July mainly because they did not need the cash flow at the time. This has proved to be a costly mistake for all of us.

Incremental selling is an important strategy while considering all factors and not just cash flow requirements.

Why Are Pre Buys on Fertilizer Down

October 16, 2008

As I talk to customers it seems that there must be lower amounts of fertilizer being purchased this fall. I think that there is less fertilizer being purchased for a couple different reasons.

One is that there was a significant amount of equipment and infrastructure purchased by farmers in the spring while prices were double of today. There were many combines, bins and tractors purchased this past spring that I am some farmers would like to rescind their orders on. Calculating your ability to service the debt on a tractor with $15 canola versus $8.50 is much different. Pile on top of this a tightening credit market and spending is tight for inputs like fertilizer.

Secondly, there seems to be a deep conviction that due to Ag commodity prices dropping that fertilizer must due the same. This is more of the theory that I am following. As I have written before either Ag commodity prices are going up or fertilizer must come down. I think farmers are a little bitter to the huge drop in farm prices and locking in high fert prices now would be a double whammy to the income statement.

Across North America this will be a game of poker between the end user and the market makers. Get ready this will be one interesting winter in fertilizer pricing and purchasing

Incremental Always Works

October 8, 2008

This is a real tough time to be farming and raising livestock. We are in a time of severe turmoil and volatility in regards to pricing or inputs and production. You need to be an expert in so many things that it is truly difficult to know what is over exuberance and what is based on fundamentals. For example, As a cattle feeder is barley priced based on fundamentals at $180? Is that a good price? For cattle feeders it is based on the $250 that we saw in July but not in comparison to $120 that we had two years ago. Of course your feeling are totally reversed if you are a grain farmer. Currently with the extreme volatility sellers tend to get attached to former prices which puts supply in very tight hands. This is exactly where we are today. Buyers of barley are smelling blood and sellers are saying, “not at this price, it can sit in my bin awhile longer.”

The one thing that is for sure is that this volatility should be proving that incremental buying selling is the best strategy because it allows for spreading out the risk of your decisions. Feedlots that purchased alot of their supply at $245 and sellers that didn’t take advantage of the higher prices because they thought that barley was going to be $300 are all mad at themselves.

Going all in is a poker term that we sometimes use in business speak and it really should be left in the poker room not the office.

Which Way Will It Go?

October 5, 2008

This could be a very interesting week in the commodities market. Harvest pricing pressure is one thing but this has been a really tough run for all farm commodities. For all you barley growers, pay attention to corns apparent fall to $4 and whether or not canola can finally find a support level that makes it want to stabilize. It can be tough to try and stay unemotional when the price of your inventory is either running up or falling down fast. When the price of a stock or commodity is running we tend to overestimate the up and downside. This is definitely a market worth watching and there is no doubt trying to predict the next move is incredibly difficult even for professionals and experts.

Fertilizer Pricing is a Puzzle

October 2, 2008

I spent a an hour today talking to several people who understand the fertilizer market better than myself. I am trying to get a better handle on where the price of urea is going to move between now and spring. Common sense tells me that is corn is going to drop between $4 and $5 urea cannot hold at $900 per MT. If the price of urea does hold I think that it is going to significantly squeeze the bottom line of farmers across North America. when corn was $7.50, $900 urea was tolerable and possibly justified based on the demand. As Ag-commodity prices move closer to the lows of 3 years ago, operating margins are definitely being squeezed like a bear hug from Andre the Giant.

If commodity prices continue to depress and fertilizer prices hold the North American farmer is definitely in for some tough times and we will all sit back and remember the one good year of 2008.

I am planning on continuing my research on the subject and sharing my finding in this blog, in Grainews or in the Haney Farms Quarterly.