Weather volatile markets with an averaging contract

Written by Janelle Lepp on Feb 25 2015

Category: Sell Grain

Trying to time the market to hit the highs right now is a risky task. An averaging contract will save you time and stress, and it will still secure a good price for your grain.

This is the trickiest time of year to price and sell your grain. Market analysts call the time period between February and spring seeding the “100 Most Volatile Days” of market fluctuations.

Grain buyers are looking at the U.S. crop and wondering: what is their seeded acreage looking like, what kind of crop are they going to get, how dry is it going to be, what is the weather like? They’re also looking at South America and other global markets as well as world events that will affect supply and demand. All of these factors begin to emerge in February, and as new information reaches grain buyers, the markets can fluctuate wildly.

If you’re a grower who wants to time the market to hit the highs right now, it’s going to be a very frustrating, stressful and time-consuming task.

Based on the historical seasonal price charts that our market analysts look at, this is a good time to get into an averaging contract. One of our contracts, PaceSetter, lets you price your grain over a period of time. When you open the contract, you choose the pricing period, futures month and delivery period that works for your farm and comfort level. Then PaceSetter tracks the daily futures closing value during your pricing period and calculates the average price. 

Let’s say, for example, you open a PaceSetter contract with a pricing period of 100 days. For each day, PaceSetter records the daily close of the futures price. At the end of your pricing period, PaceSetter calculates the average of those 100 prices – that’s the price you get for your grain when you deliver it to the elevator.

A lot of PaceSetter customers choose this contract for old crop grain. When you need to sell for storage or cash flow reasons, and the market is going up, down and sideways, it’s hard to know when to pull trigger and actually price your grain. The averaging contracts means you don’t have to constantly watch the market and try to time your sale to hit the high. 

Janelle Lepp and her husband on their farm

I use PaceSetter on my farm for new crop sales. My husband and I grow and market soybeans, corn wheat and canola in Elm Creek, Manitoba. We have the first 10% of our new-crop wheat forward contracted with a PaceSetter. From what I’ve seen in the past, I think the final contract price is going to finish in the top third of the market. I’ll then use that price as a benchmark for the rest of the grain we market after harvest.

Too many growers who try to price their grain during the 100 Most Volatile Days end up selling in the bottom of the market. While an averaging contract won’t give you the highest of high prices, it will protect you from selling at a low price. I’m confident that when growers use PaceSetter at the right time, they can price their grain in the top third of the market. Check out this video to learn more about it:

 

Your Cargill representative can help you determine if PaceSetter is a good fit for your farm and grain marketing goals. Contact your local Cargill retail location or call 1-888-855-8558 to talk to an expert.

Tags: Grain Marketing, Grain Contract

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