Well in advance of the harvest in Western Canada, the Canola Council of Canada has issued an alert on the use of malathion and the storage of harvested canola.
Let us consider two cases, farmer A and farmer B are neighbours. It is October 1 and both farmers have 100 tonnes of canola in the bin. Both farmer A and farmer B have a $40,000 operating loan at the local bank that is accruing interest at a rate of nine percent. Farmer A and farmer B are both speculating that canola prices will rise to $450 per tonne by the spring of the following year (March 31). Current prices at the commodity futures exchange are as follows:
November futures: $370/t
January futures: $374/t
March futures: $377/t
June futures: $380/t
The local elevator's cash price is normally $15 under the futures price (this is called the 'basis'). Let us assume that both farmers are going to be correct in that canola futures will rise to $450/t by March 31.
Farmer A is your traditional type of marketer. Farmer A chooses to leave his canola in the bin until March 31. Now, let us calculate what his net price will be:
Sells canola to elevator
Price = Futures - basis
= $450/t - $15/t = $435/t
Subtract interest paid
Interest/t = (loan x rate 1/2 year) divide by 100t
= ($4000 x 9 percent x 1/2) divide by 100t
= $1800 divide by 100t
Net price received
Net price = Cash price - interest paid
= $435/t - $18/t
Net price = $417/t
Farmer B has recently taken a marketing class and found out that he can sell his grain right away in the fall and speculate using the futures market. Let's calculate farmer B's net price.
Sells canola to elevator on October 1
Cash sale price
= Futures - basis
= $370/t - $15/t
Farmer B feels that by March 31 canola futures will rise to $450/t so he will replace his cash sale with a June futures contract. In his marketing class he learned that he will have to post a performance bond with his broker in order to trade futures contracts (this is called 'initial margin'). The broker informs farmer B that he will require a deposit of 10 percent of the value of the contract that he wishes to trade.
Margin required = Gross value of contract x 10 percent
= $380/t x 100t x 10 percent
Farmer B deposits the margin money in his trading account and buys 100t of June canola futures at $380/t. He takes the balance of the proceeds from the cash sale of his canola and pays down his operating loan.
Operating loan payment
= ($355/t x 100t) - $3800
= $35,500 - $3800
Operating loan remaining
= $40,000 - $31,700
Time goes by and sure enough canola futures rise to $450/t by March 31 (same as they did for farmer A). Farmer B wishes to close out his speculation.
Proceeds from trade:
Buys June canola futures at $380/t
Sells June canola futures at $450/t
Profit from trade = $70/t
Brokerage fees = $1/t
Net profit from trade = $69/t
Interest paid on operating loan
= ($8300 x 9 percent x 1/2) divide by 100t
Farmer B's net price
= $355/t from initial cash sale
+ $69/t from profitable futures trade
- $3.74/t interest on operating loan
Net price = $420.26/t
I have just shown you how two identical producers with the same commodity and the same operating loans accepted risk and chose to speculate. Both farmers thought that canola prices would rise and they did. It should be noted that the position both of these farmers took in the market was very risky. The difference is farmer B freed up 90 percent of the value of his commodity right away in the fall. He had the option of using this money to increase his cash flow. Farmer A did not have that option. Farmer B also freed up storage space and reduced the risk of spoilage in the bin. Farmer A had storage costs and risk of spoilage.
What would happen if both farmers speculated that prices would rise and then prices fell? They would both lose money on their speculations. Farmer A would have to mobilize his grain hauling operations before prices fell too hard and farmer B would simply have to make a call to his broker (which he could do from Arizona).
The 'business speculation' that I have just shown you is an excellent way to move commodity early in the crop year, increase your cash flow, and still capture price rallies later on in the season. Speculating is risky and should be approached with caution. However, speculation in the futures market is no riskier than in the cash market.
Replacing cash with futures can be approached in many different ways. Some strategies are slightly more complicated than others and require a deeper knowledge of how to use futures. The strategy you choose should be designed to accomplish your goals with an amount of risk that you are comfortable with. If you would like to read about them, stay tuned for future articles. Happy marketing. -30-
*Jack Seitz operates his own farm, a custom spraying operation and GeoPro Farm Management at Zehner, Saskatchewan. He can be reached at (306) 781-4285.
Check the 1997 March, April, August and February 1998 issues of Top Crop Manager for Jack Seitz's first four parts of this marketing series: Market signals discussed crop cost figuring and marketing plans;
Stocks : use ratios were covered in Fundamental analysis checking and;
Technical analysis basics explained commodity price charts.
Price risk and forward marketing dealt with ways to manage and reduce price risks.
This year's series began in February and will continue to explain terms and help guide producers in their marketing efforts.
To review pieces from earlier issues, check the Top Crop Manager web site, at topcropmanager.com -30-
|The bagging unit can keep pace with a grain buggy delivering grain from combines at 1000 bu/hr each.|
Storing grain on the ground has found a new method with the grain bagger. The system allows easy and fast filling of heavy-duty plastic bags which hold up to 12,000 bushels, then quick and easy extraction and loading into a truck, leaving virtually no grain on the ground. While stored in the bag, there is no spoilage from weather and problems from insects are eliminated.
The system comprises a PTO driven bagging unit which uses a large diameter auger to push grain into the bag. As grain is forced into the bag, the tractor and bagging machine are propelled forwards. Disc brakes on the bagger's two wheels can be applied so that the correct amount of circumferential bag stretch is managed.
Once grain is stored in the bag, it can be extracted at a later date using a PTO driven extractor which incorporates a central feed auger, two angled sweep augers and an elevating auger which delivers grain to a truck alongside. The angled sweep augers are set so they can raise the sides of the bag as the tractor reverses into the bag. Brush sweeps beneath them gather all but a very few kernels in the bag. As the bag is emptied, the tractor actually drives on the empty bag to maintain tension as it reverses into the bag, using a splitter knife to open the bag as it progresses.
A second type of extractor works like a toothpaste tube roller, lifting the grain in the bag into the extractor.
|The smaller and simpler 'toothpaste tube roller' extractor delivers grain to a semi-trailer.|
The system was first shown in Saskatchewan at the Western Canada Farm Progress Show in Regina, in June 2006, by distributor, Grain Bags Canada of Lake Lenore, Saskatchewan. Already interest is high and deliveries began before the 2006 harvest.
One system was purchased by Somerville Farms at Mantario, Saskatchewan, where brothers Ken, Bryan and Sam Somerville grow mostly durum on 6500 acres. In 2006, they had stored 110,000 bushels in the bags by mid September and planned to add another 20,000 bushels. We are short on storage, says Ken. We usually pile in the field or fix up old bins or use bin rings with covers, but this system is simpler and more economical. He also has the option of keeping grain for an extended period if grain prices are low and needs more capacity than his permanent storage allows.
|A hand-pump applies pressure to disc brakes on each wheel to set resistance so that the bag is stretched as grain fills.|
Losses from weather and vermin, then collecting grain piled in the field can be as high as five percent, says Aaron Yeager of Grain Bags Canada. The costs of grain bagging is about seven to 10 cents per bushel for the bag material. This compares with capital costs of $1.25 to $1.45 per bushel for storage bins. The bag system can be used at any location, even on rented land where a farmer does not want to invest in permanent storage. The user can weigh the operational cost plus the capital cost of the bagger, at $18,000, and extractor, at $22,000, against the convenience and flexibility of remote field storage.
There are other advantages: Grain in the bags consumes the oxygen and expels CO2 which cannot escape and this kills any insect pests in the grain, says Yeager. He adds that once the oxygen is consumed the grain goes into dormancy.
We can eliminate the need for a truck in the field at harvest, plus the manpower to operate it, adds Ken. He has ample help outside of harvest-time to extract bagged grain for delivery to an elevator. In fact, he is making his extractor available to other bag users in his area and offering them trucking services as well.
Somerville also notes there is no bottleneck in the field. With an 800 bushel Degelman grain cart, the operator has plenty of time to unload and oversee the bagger while keeping our two John Deere 9650 STS combines operating at 1000 bushels per hour each.
The bags are made with durable 9.3 mil plastic and come in lengths of 200 feet, which at 40 bushels per foot holds 8000 bushels and 300 feet, holding 12,000 bushels. In other counties users have bagged grain at 17 percent moisture without experiencing losses of quality, says Yeager. Also, there is no loss of germ if the grain is to be used as seed if it is dry when bagged.
|Field piled grain losses are eliminated by using bags.|
Yeager says the idea of using bags is originally a Canadian concept, but difficulties with retrieval hampered adoption of the idea. This system, manufactured in Argentina by Maniero, has solved the retrieval problem and is now in use in 21 countries around the world.
He has great expectations for farmers and even elevators who want to increase their remote storage capacity. All they need is a level, accessible site, he adds, noting that one grain handler has a storage site with 1.2 million bushels in bags. -30-
Proper potato storage is a high-tech proposition these days as growers attempt to store their crop longer while maintaining its quality to meet the dictates of a contract. Grandpa's old method of throwing the spuds in a cold room in the basement with the hope that enough would survive until the next crop was dug has not been a viable storage alternative since Grandpa did it. However, a few growers still think like Grandpa, even if they do not practice his methods, which can lead to some serious storage problems in the modern potato production world.
Researchers and processors are stepping up to help growers navigate the route to good storage practices. Dr. Robert Coffin of Cavendish Farms on Prince Edward Island is a self-proclaimed 'storage crusader' as he sees a need to help growers understand their storage better and improve its efficiency. Growers need to understand the fundamentals of storage which will help minimize losses, Coffin says. Education is paramount. For example, growers need to understand relative humidity and what it means to stored potatoes. He says, while there are many high-tech storage systems available for growers to use, those growers still need to understand some basic science to make the technology work for them.
|Researchers and processors are stepping up to help growers navigate the route to good storage practices, says Robert Coffin.|
I've been in storage facilities where the floors were wet and the walls were dripping, continues Coffin in a 'basics of relative humidity' lecture. If you have 100 percent humidity, the air can't remove moisture! It won't matter how many fans you have circulating the air if all it is doing is circulating the air that is already saturated. Instead, we had to circulate outside air into the bin and use heaters to reduce the humidity. He says, because some growers do not understand some of the basics of science, they can have trouble with their storage no matter how many computers and monitors they have in place.
Over at New Brunswick's McCain Foods (Canada), Dr. Yves Leclerc, a potato specialist, says his company started offering a monitoring service to its growers. We want our growers to get the best out of their storage. We saw that once they grew the crop, they were uncertain how to manage it.
Coffin adds that companies selling computerized storage controls do not always ensure the purchaser understands the basics of storage, which leads to problems. He says once growers understand the fundamentals of storage, the controls become the tool they are intended to be with the grower ensuring they are working properly. While the literature might suggest the controls take the guesswork out of storage problems, a collection of wires and probes cannot replace the observations of a grower checking his storage regularly and ensuring nothing is amiss.
Leclerc suggests storage gets forgotten after the crop is out of the ground. In the summer, there are all kinds of consultants in the field, but there are few consultants for storage management, he says. Growers need to spend the same amount of time on storage as they do in the field growing the crop. Humidity, temperature, and air quality have to be monitored on a regular basis.
Just as a dairy farmer would not head off to Florida without ensuring the cows are being looked after, potato growers cannot leave their storage unattended for long periods. Potatoes are still living products and quality can be affected over time if storage is not maintained at a level to preserve that quality. A great deal of research has been conducted and is understood by growers on how to reduce disease and pests in stored potatoes and how to maintain levels of humidity and air circulation. But, according to Coffin, because the end use of the potatoes may be different, each end use has its own guidelines on how to maintain quality to that end use's specifications. It is the differences that sometimes leave growers juggling a hot potato! They do not always understand the fundamentals well enough to ensure the end result.
Perhaps the best advice to growers is to brush up on storage fundamentals through specialized training sessions. Then, if they are still unsure of the basics, seek out a storage consultant. If a grower has a contract with a large processor, there might be an agronomist on staff at the company who will help manage the crop in storage to extract the most value and optimize colour. Growing potatoes is a full-time business and the work does not end when the bin door closes. -30-
|Power is delivered to the harvester through the goose-neck swinging hitch.|
The economic benefits of the concept accrue from a lower cost of equipment: the harvester and mill combined cost about 10 percent less than a conventional self-propelled combine; a lower operating cost in the field; the feed value of the millings; and the bonus of removing weed seeds from the field, which is expected to reduce eventual weed management costs.
|Millings are saved for livestock feed.|
Field speed for the harvester is estimated at 20 percent faster than a conventional combine because all grain is saved and speed is not limited by the fear of losing grain from the cleaning shoe. The McLeod Harvester has been used to handle most prairie crops; cereals, oilseeds and peas included. Oâ€™Keefe notes that the conventional cylinder system should allow the machine to harvest any crop.
The stationary mill is powered by a single phase 220V motor and operates untended, other than the truck operator making a delivery every 15 minutes. After dumping the graff onto a self-feeding receiver, the crop is fed through a grain separator and the chaff and weed seed millings are conveyed by air to a pile. The fan is aggressive enough to mash weed seeds, says Oâ€™Keefe. He adds that the texture of the millings prevents it from blowing in the wind and after a rain, the pile forms a light crust, reducing spoilage to zero. Grain is cleaned to export standards before being augered to storage.
|The receiving bed tips to feed the separator at the mill.|
Dr. Martin Entz, at the University of Manitoba, says savings of $12.09 per acre for the first six years and $20.06 per acre long-term could be realized in weed control costs. By both removing weed seeds from the field and by not respreading weed seeds as with conventional harvesters, weed pressures are reduced.
In total, the potential additional crop value, savings in inputs and lower costs of capital and operations may make this new system attractive. McLeod obviously believes there is a market; production is gearing up to build five machines in 2000. -30-
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