By Shankar Das
Regional Farm Business Management Specialist
Saskatchewan Ministry of Agriculture
Canada is a major grain exporting country that sells grain to the world market, with a climate to produce a single crop annually. To manage their marketing risk, farmers’ make contract agreements with grain companies before the crops are in the ground. In doing do so, they face many different risks such as production risk, price risk, financial risk, market risk, environmental risk, health risk, and even legal risk which involves many other players.
or example, grain companies make contracts with the farmers to purchase grain which they contract to sell to the processors. The processors make contracts with the retailers until the products are sold to the consumers. Consequently, a continuum of risk environment prevails. In addition, these players also deal with the import-export environment, the volatility of the market, exchange rates, tariffs etc. Therefore, risks exist at all levels at the same time.
All the players try to lower their risk. How do these players manage their risks? According to Brian Wittal, a market planner and advisor from Pro Com Marketing Ltd, “grain companies, for example, lower their risk by passing it on to farmers.” He suggests that the famers should find ways to lower theirs as well.
How does a farmer mitigate his/her risks then? Specifically, how does a farmer mitigate the price risk? According to Piggot, Shumaker and Curtis of North Carolina Cooperative Extension Service, managing price risk, for example, includes a wide variety of marketing strategies that involves exercising a range of marketing instruments such as basis contracts, futures markets and options markets. In addition, farmers may also utilize crop insurance to mitigate production risk. Further risk mitigation includes participating in government programs such as Agri-Stability and Growing Forward II. A balanced approach to all these risk mitigating tools is key to successful risk management.
For additional information on marketing and risk management please visit our website: www.agriculture.gov.sk.ca.