Production & Marketing There is no magic formula, but following some bigger picture trends can help. MARKETS are challenging to predict at the best of times, and the hurdle is even greater the further one looks into the future. You can tilt the field in your favour by fully understanding the current fundamentals, keeping an eye on long-term demand trends, and knowing the extent to which potential crop sales match the operating needs on your farm. Production and prices are two of the factors that vary the most from one year to the next on a farm, and yet are the biggest driver of profitability. Revenues need to be higher than expenses. Revenue is a function of both grain quantity and quality and, ultimately, the price received for the grain. There is little relationship between a given farm’s production and the overall price. Both are out of the farmer’s control. For the most part there is not a great deal of overlap between production practices and marketing decisions. Around the margins there might be some influence when, for example, a grower applies extra nitrogen to the wheat crop in an effort to bump up protein levels to take advantage of elevated protein premiums. It is easier to justify investing more into a crop that has a favourable price outlook. However, the price outlook has little bearing on most production decisions – once the decision to plant a crop has been made, farmers do what they can to maximize yield and promote quality. There is one place where production and marketing decisions do collide: the decision on what to plant in the first place. Of course, cropping decisions are confined by agronomic considerations and other factors, but at the end of the day, the business needs to make money over the longer term if it is to be sustainable. Within the range of potential crops that can be planted on a given field, the prospects of making money is a critical part of what ultimately goes in the ground. Since planting decisions are being made as early as harvest (or earlier), farmers must have an opinion on prices between 12 to nearly 24 months out. There is a limited ability to make last- minute decisions. Given that weather and government policy are the two biggest influences on grain prices, and both are completely unknown that far in advance, how can farmers have a good grasp on price expectations? WhenProductionand MarketingDecisionsCollide There is no magic formula, but following some bigger picture trends can help guide us. First, try to understand the fundamental setup for the current marketing year. The goal is the next marketing year but the current season sets the table for the ensuing price action. Crops that have a tighter carry-out situation going into the next harvest have a greater sensitivity to yield threats. Crops that are projected to have comfortable supplies going into the next harvest have a smaller probability of seeing upward price movement. Large stocks provide a cushion that the market can fall back on in the event of a weather scare, reducing future upside potential. In these cases, a lot more needs to go “right” before the market gets excited. Medium quality wheat is a case in point, where the world is awash with stocks. Jonathon Driedger 40 www.seed.ab.ca | Advancing Seed in Alberta