July 20, 2017
Crop conditions in the Prairies and the United States have deteriorated in recent weeks thanks to the persistent 100-degree temperatures and lack of any relief.
While some have argued that the meteorological misery in North America presents an opportunity for European and Australian growers, Mother Nature is causing havoc all around the world.
This has created a major hunt for high-protein grain and driven premiums higher.
The challenge for producers is to understand a buyer’s mindset and motivations at any particular time. Mastering this challenge will help farmers maximize profits and reduce the amount of time required to find a willing buyer. Producers have long needed a resource that shows what buyers buyer need at any moment – and what they are willing to pay.
That resource is finally in play for U.S. farmers looking to take advantage of today’s market.
Conditions Weaken, Prices Rise
Current conditions in today’s spring wheat market present a terrific opportunity for growers with high-quality grain.
This year is shaping up to be one of the most difficult for buyers seeking high-protein wheat.
The USDA has been keeping track of a perfect storm of data that is pointing toward high prices and tight supply. While weather always seems to grab the headlines, farmers planted the smallest amount of wheat since the government agency began keeping track back in 1919.
As a result, the USDA projects that U.S. production of all spring wheat (not durum) will hit 423 million bushels. That is the smallest level of production since 2002.
The USDA’s latest crop progress report indicated that 41 percent of the spring wheat crop is rated very poor to poor, while 34% is rated good-to-excellent.
For a better understanding of just how difficult it has been, look no further than South Dakota, where 74% of the crop is in very poor-to-poor condition. Just 8% of the crop is rated good-to-excellent. These conditions are happening at a time that protein quality continues to decline.
Weakening crop conditions have driven spring wheat futures contracts to four-year highs in Minneapolis. Earlier this month, the USDA reported that U.S. spring stocks are expected to finish the 2017/2018 marketing year at 122 million bushels, its smallest figure since the 2007-2008 run-up that saw spring wheat futures contracts topped $24.00 per bushel.
One shouldn’t anticipate that speculation will run this wild all over again. But it does raise eyebrows at the state of the crop given that supply and demand fundamentals – not rampant naked call buying – is pushing prices higher.
It’s a sellers’ market…
What North American Farmers Should Do Now
On Tuesday, while we discussed the conditions of Hard Winter Wheat, we explained the importance of grain testing to buyers. Today, we want to highlight a few other points from our conversation with Courtney Boryski, a grain trader with Hansen-Mueller.
Boryski told us that grain testing is one of the most important things that producers can do because buyers like her are willing to pay more money for the grain they want based on the specifications they desire.
But our conversation covered more than just the importance of grain testing. It explored the opportunities that independent producers have in a tight market like the one we are facing in spring wheat.
“In a short year like the one we are seeing with drought, there is more assurance to work with independent sellers,” she says. “In a bigger supply year, I don’t necessarily need to be working with a producer very much.”
However, she quickly pointed out that if farmers have high-quality protein in any market, particularly those with unique specifications, she’s willing to explore a deal. “It’s what suits whatever my needs are at a specific time,” she says.
Do You Know Who Will Pay More?
Producers need a convenient resource that that tells them what buyers need at any given time and what they are willing to pay. A perfect example of the variation of needs by buyers was exhibited in a message on Twitter from South Dakota farmer Chet Edinger.
“2 elevators 40 miles apart. 1 is paying $.10 per 1/5 protein prem the other is $.04 per 1/5. $.60/bu on 14 pro #shoparound.”
Let’s unwrap that message.
Two elevators are sitting 40 miles from each other.
The first is paying a premium of $0.10 for every extra 1/5% in protein.
The second is paying $0.04 per 1/5% in protein.
That is a $0.30 difference for every percentage point of protein between the two elevators. This amount could be a lot of money if you can strike a deal with the first elevator.
This spread is why Edinger concludes with the instruction to “shop around.”
There are plenty of buyers in this tight market for high-protein.
If two elevators within 40 miles of one another are paying significantly different premiums, imagine what farmers in that area might be able to receive if they had access to buyers 100 miles away?
Tight markets like the spring wheat one we face right now is a time that buyers are anxious to meet and work with independent producers.
FarmLead offers you the chance to post your grain for free. You may find out that a buyer you don’t know is willing to pay you far more for your grain than anyone you’ve called in recent weeks.
Rather than talking to just two or three buyers you’ve known (or having to call everyone within 100 miles), you’ll get instant access to hundreds of buyers whose credit has been vetted and verified by our team. Then, you can sit back and wait for someone to contact you for your grain.
Boryski told us this week that “there isn’t low demand for high protein wheat.”
She encourages producers to remember that everything is negotiable, just make sure that there is plenty of communication during the process. Are you ready to find more buyers for your grain?
Give it a try, and post your grain for free at FarmLead.com.