At the Grain Marketing Workshop held Jan. 30 at the Living Sky Casino’s Sky Centre, speaker John De Pape, President of Farmers Advanced Risk Management Co. Ltd., talked at length about market behavior, his analyses of certain trends, and the impact farmers can have on basis, spreads and futures.
De Pape, who backs his recommendations with 30 years of experience in agricultural commodity trading and risk management as well as an in-depth knowledge of Canadian agricultural policy issues, believes in empowering producers to help them compete in a post-Canadian Wheat Board trading environment. To do that, he created a price-averaging tool called the Advanced Grain Pricing Program.
“I’m not saying don’t do your homework, don’t get to understand the market. You need a sense of the market place, but instead of just waiting to buy time, if you think you need to speculate to get a better return, I don’t like that.”
De Pape equates waiting and storing uncommitted grain to speculating. Instead, De Pape suggests making a commitment, even if it is to a deferred position, so that stored grain has an assured value.
“If you’re storing grain but it’s sold, committed, then you probably sold it at that higher price because you’re getting a better price, so you’re getting paid to store it because you’re getting a better price after storing it.
“If you’re just holding it and you haven’t sold it - no commitment - then what you’re doing is you’re waiting. Waiting for what? Waiting for a better price? That may not come.
“Sometimes that works. Sometimes that works in spades, but the point that I like making is you are taking a risk and the risk is that the price won’t go the way you think it will. If you have very deep pockets and a lot of bins, that could be a sound approach. You could end up doing well by doing that.”
The reality, De Pape said, is that most producers are not in that position.
“That was one of the drivers for us: that really, does it makes sense to keep grain on price, waiting for a better price? For our program, farmers have committed to the program so they know that they will be priced on an ongoing basis, so in a way they’re not really waiting because it is committed.”
De Pape believes producers can have a tangible, strategic impact on the market in a post CWB world.
“It’s going to be noticeable, because with the Wheat Board the price never changed, regardless of when you delivered. There was no way farmers could respond to price; that was the only price.
“I guess they could say, that’s a good price so I’m going to grow more wheat, or it’s not a good price relative to other crops so I’ll grow less. They could still have that impact, but in the market they couldn’t respond to price changes, so good, bad or indifferent, they’ll have a greater impact on the price than they used to.”
De Pape explained that the market will respond to selling, but also to a lack of selling, and that is where producers have a significant role to play, even as individuals.
“For instance, at $14 a bushel for canola, there’s a lot of talk that at $14 I’ll sell it. On the grain trade, the buyers know this; that if we get to $14 there’ll be a lot of selling. You’ll be able to buy what you need at $14, and so sometimes they’ll push the price up there, get farmers to sell, they’ll put a deal together, and so that will become kind of a resistance.
“The market knows these price ideas of farmers, so what happens is a lot of guys sell it at $14. Then the market will dip down because the pipeline has been filled up for a while.
“The same thing can apply to basis. When it gets too cheap, a lot of farmers say I’m not selling.
“So what I was saying on basis, if basis is wide, the price is low, look at a deferred position and sell that instead of the right now position. So then the guys that are wanting to buy it right now are saying, no one’s selling it to me now, so that will raise the price.”
De Pape feels that the “voluntary pooling” strategy he has developed is working well.
“I’ve always felt that farmers tend to have weak hands, and they feel that they have weak hands, and that’s why they sell in the fall; because they need cash. But if we can figure out a way to give them more cash flow and empower them with these kinds of signals, then I think that they can do better in the market. So I’ve always said I want to help farmers get stronger hands.”
“There are other market advisors out there, as far as that goes. If you’re feeling overwhelmed, hire someone. It might cost you $2, $3, $4 a tonne … but it could be money well spent.”
For more information on Farmers Advanced Risk Management Co., contact John De Pape at http://www.linkedin.com/in/johndepape.
Links that provide free market information are:
Farm Credit Canada: http://fcc-fac.ca/en/AgNews/markets_e.asp
Archer Daniels Midland: http://www.e-adm.com/grain_comments/grain_default.aspx
International Grains Council: http://www.igc.int/en/Default.aspx
The Progressive Farmer: http://www.dtnprogressivefarmer.com/
Agri Money: http://www.agrimoney.com/3/markets/