I remember someone once saying that March is the muddy month. Well, only time will tell; however, we should remain optimistic. For most areas in Idaho, the ground moisture is better than this time last year. We still needed to add to the snowpack in order to have adequate water for irrigation then, and a good number of producers are already talking this year about just how they will ration their water and still produce a crop.
Keeping this in mind, we could see more acreage move from wheat to malt barley as you juggle not only water but fertilizer availability. If this turns out to be the case, we could see a reduction in hard white and dark northern spring acreage. Soft white acreage could remain unchanged just for the fact that it would require less fertilizer. I was visiting with some producers who felt they could get by on a little less fertilizer this year if they had adequate water, but they wouldn’t be able to do it two years in a row. Like we talked about last month, producing your crop is always a moving target.
At the time I wrote this article, the Chicago December wheat futures contract was trading 80 cents off the contract high, as well as 80 cents higher than the contract low. Don’t feel bad if you didn’t lock in the contract high on some of your 2022 soft white crop. After all, we only know the high after it has come and gone. However, you now have a great opportunity to use the current price as your starting point (no matter where that price is).
I feel the bigger issue with pricing your soft white is the basis. Basis was extremely high this past year, but if the Pacific Northwest produces a good crop this coming year, we will see the basis for soft white move into a more normal level and pattern. Without any help from the futures, we could see the cash price be $2 per bushel less just on the weaker basis alone.
This may not be what you want to hear, but it could happen based on the current news. I know we all need higher prices, but the market is always right, and the market may not be willing to give us all we need.
Keeping this in mind, it will be important for you to manage your price risk in the market. There are a number of different methods and programs for you to use in accomplishing this. Probably the most important mindset is: This is risk management, not necessarily a means of making more money.
Often, I am asked by producers, “How can we trade and manage our price risk like the grain companies do?” The answer is: First, you identify your price risk, and then you work toward reducing that risk by whatever means you are comfortable using. This includes forward contracting, insurance policies, futures contracts, options on futures contracts and hedge to arrive contracts. This may not be all the tools available to you, but it gives you an idea of what is out there. I would recommend you use a combination of some or all to find how a different marketing plan can benefit you in the long run.
Let’s visit for a minute about input costs. The one that comes to my mind is the cost of diesel fuel. In most areas, we hit a low price level around the first of the year. Since then, prices have continued to trend higher. If the trend this year follows the past couple, we will continue the trend higher into the middle to late spring before we see any downside movement. If you have filled your storage tank, it looks as though the opportunity to work off of the bottom of your tank could present itself this spring. If you need to buy more fuel, you could buy hand to mouth while we wait for a break in the market.
Whether you are buying or selling, it will be important to spend the time necessary to make decisions based on what the market is telling you to do. Remember, we can only look at what news is in the market today when making those decisions. If the news changes tomorrow, then maybe you adjust your plan, but remember – the market is always right.
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