With prices for most fall 2022 delivered crops at historically high levels, there are considerations for contracting new crop.
“We’re seeing canola bids as high as $21/bushel and barley bids at $8/bushel; but despite these high prices, many producers have vivid memories of having to buy out unfilled contracts made in 2021,” says Neil Blue, provincial crops market analyst with Alberta Agriculture, Forestry and Rural Economic Development. "Once bitten, twice shy’ is understandable following last year’s drought-reduced crop. What are some considerations of contracting new crop?”
Blue says the first thing to consider is whether there are any outstanding contracted volumes of crops from prior years. If so, those may need to be dealt with, either through a buyout or deliveries, with those deliveries possibly from 2022 crop production.
Producers must then consider what crops are in the seeding plan for 2022. Plans may already be set by one’s crop rotation, but there may be other factors influencing seeding decisions this year. Some of those factors could be availability of high quality seed, considerations of residual herbicide, disease or insect concerns for 2022, high fertilizer and fuel prices, crop insurance coverage levels, and available contracting opportunities for individual crops.
“Regarding crop contracting opportunities for 2022, of course the net farm-gate price should also be considered. Delivery costs could increase this year, even if you truck your own crops. If possible, obtain a blank contract from a prospective buyer before signing it, read it, understand it, and consider all the ‘what-ifs’. Then clarify any questions that you may have about the contract before signing the contract. Some buyers offer contracts with an Act of God clause that will provide protection in case of a crop shortfall. Perhaps some buyers will consider adding such a clause in a contract at a discounted price.”
Blue points out few crops remain that have a futures or options market. Availability of those price risk management tools are still available for Alberta’s major crops of canola, oats and wheat, although the oats and wheat contracts trade in U.S. dollars.
“Such contracts can provide pricing protection without the commitment of delivery, enabling producers to still shop around for the ‘best’ buyer of the physical crop.”
To help with understanding of cropping economics, Alberta Agriculture, Forestry and Rural Economic Development has a number of resources available to producers. Cropping Alternatives provides some guideline costs and return by Alberta soil type for the major crops.
“This is a useful resource, but it is best to use one’s own estimates of potential crop income and expenses with free downloadable programs such as Crop Budget Calculator and CropChoices,” says Blue.
Source : alberta.ca