The situation is such it’s difficult to envision a producer sitting with anything in the bin that has not already been sold and is simply awaiting delivery.
Selling was certainly the message from Grain Millers Harvest Showdown speaker Matt Snell, Senior Risk Manager at Stone X in Chicago.
Snell’s message to producers attending an ‘Ag Appreciation Evening’ was that the current situation has “been a perfect bull market.”
In terms of canola Snell said he has “never seen prices as high as they are,” a situation supported by a lower Canadian harvest of about 12.7 million metric tonnes.
The lower production is significant as demand remains high, offered Snell.
“Demand is still there,” he said, adding it’s “starting to reduce our stockpiles.”
The situation is such that the veg oil carry-out in stocks to use is down to six per cent, said Snell, which “is the lowest we’ve seen in a very, very long time. There’s an insatiable amount of demand.”
The biggest driver in terms of demand is China, and there have been suggestions that country could increase purchases farther, but Snell said betting on that happening might not be the wisest move. He said to bet on China buying more “is taking a lot of risk in my opinion.”
But with prices in the $22 to $23 a bushel range right now things are great for canola sales.
“The market is telling me to sell right now,” said Snell. “I don’t know if prices are going to go higher ... They are the highest ever ... But, no one ever went broke making a profit.”
There was a similar message in terms of wheat from Snell too.
The bigger question for producers is what they should be doing in terms of pricing their 2022 crop.
A number of producers found themselves short of production to honour contracts in 2021 crop and that has implications. For some that means having to go out and buy bushels, or for others rolling contracts forward meaning some of their 2022 crop is in essence already sold.
The key of course is limiting the risk of forward selling by having either some market insurance in place, or by limiting the amount pre-sold to a production level all but guaranteed on the farm.
But high prices are alluring and it’s easy to decide to take added risk of pre-selling more crop to take advantage of high prices.
That is likely to be the scenario in 2022, where prices might not hold at current levels, but are likely to be strong allowing producers to determine their cost-of-production and to lock in a reasonable profit.
The key will be managing the production risk of selling crop ahead of harvest, or even seeding the crop.
