Wednesday, March 19, 2014

No Plan Survives Contact with the Enemy

I don't remember who coined the phrase, but in the 1800s a military strategist said it.  No plan survives contact with the enemy.  You can plan and plan, but the enemy has their own plan..and it's going to mess with yours.

Well, I've been building my own plan recently.  Over the last few weeks, I've cobbled together my marketing plan for the 2014 crop.  With the decline in grain prices from last year's levels, I thought it was important to build a plan that helps mitigate some risk.

I started with Put Options on my spring wheat.  I worked through a broker to buy 4 options (20,000 bushels total) as an insurance against price decline, locking in a strike price of $6.50.  The options cost 24 and 1/2 cents per bushel on the first two options and 26 cents on the second two.  There were also commissions and fees totaling about $260, which brings the average price to about 26 and 1/2 cents.  That basically means I locked in a floor price of $6.23 per bushel, regardless of what happens in the market.  And if prices rise...then I let the options lapse and still get the higher prices.

Next were the lentils, and I contracted half of my expected production with a local elevator.  The price on red lentils was $19 per hundred-weight (cwt), which is a dollar above the price I earned in 2013.  Just like on the faba contract, I have an Act of God provision in case of a drought or flood, and I also have to give that elevator the opportunity to buy any excess beyond the 3200 cwt that I contracted.

Finally, wheat prices increased recently (in part due to the events in Crimea with their own plans and contact with the enemy), so I contracted about a quarter of my expected wheat yield on a Futures Fixed contract.  I locked in a futures price of $7.33 per bushel.  The basis and quality premiums/discounts will be established this fall when I deliver the grain to the elevator.  Historically, the basis is 30-40 cents per bushel, leaving me a price of $6.93...which again is higher than what I earned on my 2013 crop.

So there it is, the plan is starting to come together.  I'm certain I won't hit the market highs...but I'm locking in a profit and that's what I care about.

Now, I wonder what will happen when I have first contact with the enemy...

Thursday, March 6, 2014

Faba!

Yep, I'm going to attempt to grow some faba beans.

Don't know much about them?  Neither do I...but I am about to learn.  And hopefully it's a good learning experience.  I decide to try faba beans primarily because they fix more nitrogen in the soil than other pulses such as peas or lentils.  In fact, they could fix up to 20% more.  That's why I'm pursuing this.  If I can break even on faba bean production, the payoff could come through reducing fertilizer input costs for my other crops.

I've started by talking with a neighboring farmer 20 miles away who raised them last year.  As far as I can tell, he's the first and only farmer on the Hi-Line to raise them.  He shared quite a bit of information with me and I'm thankful for his support and guidance.

I'm going to start off small...just 50 acres.  I'm doing that for a couple of reasons.  First, there's not much known about how suitable they are for the climate and soil conditions on the Hi-Line.  Secondly, because there is no production history in Montana, I can't obtain insurance on the crop through commercial sources or through the FSA NAP (Noninsured Crop Disaster Assistance Program).  Lastly, I am not sure how faba beans will fit into the FSA's ARC program, so I have to plant them on non-base acres.

I am purchasing the beans through United Pulse in North Dakota.  Their supplier is in Saskatoon, Saskatchewan and will deliver them to my farm.  I also signed a pre-production contract with United Pulse for approximately 1/3 of my expected yield.  I can sell the remaining yield through other buyers as long as I give United Pulse the opportunity to match the price.

So, I'm excited!  I'll keep you updated on the faba beans as the year progresses and as I learn my lessons.

Faba!

Sunday, February 9, 2014

Payday!

Payday!

Yep, I have sold just over half of my 2013 crop so far.  All the lentils are gone and half of the wheat.  It's good to finally get a pay check!

Lentils being loaded for delivery
The lentils were contracted just prior to harvesting them.  It took a few days to get a deal done because the elevator's buyer backed out at the last minute.  But after a bit they found another buyer and I signed a contract.  I wasn't sure exactly how much to contract because the crop hadn't been cut yet, so I was conservative on my estimate.  In the end, I had contracted 70% of the crop pre-harvest.

About a month after they were in the bin, I was able to get them hauled to the elevator.  The contracted lentils sold at $18.00 per hundred-weight and the excess lentils sold at $17.50.  The samples collected by the elevator were sent to the state USDA lab, where they graded out as No. 1 quality lentils.  Good news!  Dockage was 1.7%, while defects & foreign material were 0.9%.  Overall I was very happy with the results.

Wheat on the way to the elevator
I contracted the wheat crop after it was in the bin.  Half of the crop sampled out at 12.5% protein, so I contracted those bushels on a 12-protein bid at $6.47 that a local elevator just happened to have out.  Delivery was due in November, but due to rail issues the elevator couldn't take them until December.  Just like the lentils, samples were sent for analysis.  Weight was just under 62 lbs, protein was 12.36%, and dockage just over 0.3%.  Again, I was very happy.

The last half of the wheat crop is contracted for delivery this month.  I'm looking forward to getting it hauled off, so I can have the 2013 crop gone and be ready to fill the bins again in 2014.

It's great to have a Payday!

Thursday, February 6, 2014

What Do I Do About This?


Uh...what do I do about this?

I found myself asking this question a million times once I started farming.  As I wrote in an earlier post, I sought out any training I could find as I began to transition from the Air Force to the farm.  One of the best programs I found is through the National Farmers Union and it's called the Beginning Farmer Institute.


 This is the third year for their program and I was lucky to get to participate.  It's an absolutely outstanding program, run by the NFU Director of Education who loves to help beginning farmers.


One of the many great education sessions
I can't tell you enough how great this program is.  The other participants are all beginning farmers and we bounce ideas and questions off of each other all the time.  The participants are also very diverse, which I think is great.  We have a dairy operator, organic and conventional grain farmers, bee keepers, and farmers market & CSA producers.  Some have been farming 4-5 years, some are just starting, others will be starting soon.

Touring Whistling Well Farm in MN
The agenda centers around developing leadership and farm management skills, but it is tailored to meet the needs and desires of each group of participants.  The group has had excellent access to a great group of experts, professional speakers, ag and small business professionals, government officials, and others.  The program includes three sessions where we met as a group.  Ours were held in Washington DC, Minneapolis, and soon in Santa Fe.

If you are a beginning farmer or if you know one, I encourage you to take a look at NFU's Beginning Farmer Institute.  But you need to hurry, applications for the 2014 participants are due on February 20th.

Now that I figured that out...what do I do about this?

Sunday, November 24, 2013

Hope & Marketing

Hope isn't a plan of action....

One of my weakest skills as a new farm owner & operator is marketing.  What is the best way to market my grain?  When?  How do I maximize my profit?  I've put a lot of thought into it and sought out resources to help me over the last six months.  I sold all of my 2013 crop and I would give myself a "C" grade overall.

Loading lentils to haul to the elevator
Lentils:  I contracted my lentil crop with a local grain elevator just prior to them being harvested.  I wasn't sure how many bushels to contract because the crop wasn't cut yet.  How do you know for sure?  After talking with some neighbors, I decided to contract 5,000 bushels.  Boy did I feel relief when that 5,001th bushel went through the combine!  I think I did pretty well with the lentil marketing.  I got a good price, I got them hauled off early, and all the lentils were Grade #1 when they arrived at the elevator.

Wheat:  All of my wheat went into storage on my farm, as none of it was sold yet at harvest time.  I then contracted half of my wheat crop in October for November delivery.  The trucks will be at the farm next week to haul it off to the elevator.  This contract was a 12% protein bid and the price was fair.

It takes a market plan to turn kernels of wheat into product
Then I sat and watched the market.  Down...down...down.  Finally this month I contracted the last half of the wheat for February delivery.  That contract is a 14% protein bid.  The price is okay, I'll still make a profit...but not as good as it could have been.

So why the C grade for marketing?  Well, I had other tools that I could have used to help me and I didn't.  I could have done some hedging.  I could have done a Put option to protect me against the falling wheat prices.  I could have done some pre-harvest contracts.  And I haven't done anything yet to get the 2014 crop priced and locked in at a profit.

So I'll stick with the C grade.  I made a profit and survived.  It wasn't a failure, but there is a lot of room for improvement.  I guess that's one of the things I love about the farm life...there's always the hope of doing it better next time.

But as we used to say during my days in the military...hope isn't a plan of action.  You can hope all you want, but it takes study, planning, and work to get the results you want.

It's time to build my plan of action...

Sunday, November 17, 2013

The Great White Combine

Well...it wasn't exactly THE great white combine, but it was his little distant cousin.

Yep, I had a little hail damage on my first crop.  It came in an afternoon thunderstorm that appeared non-threatening.  My crop was standing and ready to harvest, just waiting for the neighbor to make his way over after finishing some of his own.  When I heard the hail begin to hit, my heart sank.  It hailed for about a minute but it seemed like an eternity as I waited it out.

Wheat kernels after the hail
In the end, I got pretty lucky with the little hail storm; it could have been much worse.  The hail stones turned out to be about pea-sized.  When I scouted for damage, I could see wheat kernels on the ground and a few broken wheat steams.  The area of damage appeared to be under a half-section of crop (less than 320 acres).

My hail insurance was through the State of Montana.  I called to register my hail claim and explained that I would be harvesting the crop in a couple of days.  I have to say, I was very impressed at how quickly the State Hail Program responded and sent a crop adjuster to the farm.  Yes I was a bit skeptical; I expected government bureaucracy would mean two weeks until an adjuster arrived.  But just two days after the storm, he was on the farm and inspecting the crop.

State Hail Program adjuster checking damage
The final calculations on the damage came out to be 6.1% loss on 160 acres.  I felt that the area of damage was a bit bigger, maybe around 220, 240.  But after watching the adjuster do his appraisal I also felt his damage assessment of 6.1% was very liberal.  So it was a give-and-take situation and I felt like I got a square deal in the end.

Even more surprising?  The State Hail Program had the insurance loss check to me within another 10 days.  Yeah, I would have bet the farm that it would take months for that claim to be processed.  10 days is amazing.

The Old Man used to say you win some, you lose some.  In this case, I lost some grain and lost a bit of profit.  But I won some knowledge and won some respect for The Big Guy's combine.

Yes...the Great White Combine.

Sunday, November 3, 2013

Harvest Is Done!

Finally...harvest is done!
 
First though, I apologize for the lack of updates about my farm.  I was in the habit of updating every Sunday morning and then suddenly farming happened and I was working every weekend.  I guess I'm still trying to work on my routine here.

Well, the main news is that harvest is finally over.  It was great!  There's no better time on a farm than during harvest...the sights, the smell, the long days...I love it.  Harvest lasted about two months, mid-August to mid-October.  Actually, it took a total of four days to harvest my crops, but I spent the remainder of the time helping two neighbors with their crops and they have a lot more acres to cover than I do.
 

My first lentil harvest
The lentil crop was fantastic!  We harvested them in early September and I got about two years' worth of production in just one year, even though they were red lentils (green lentils usually have a higher yield than reds).  Two neighbors and I cut the crop with three modern CaseIH combines.  My 200 acres took an entire day because the lentils were very thick.  Instead of clipping along at 4-5 mph, we were running about 2 mph and in many cases less than 1 mph.  The lentils themselves were very good quality.  They were uniform in size, had no discoloration, and they were very clean.  It's great to have high yield and high quality in the same year!
 
Neighbor harvesting my spring wheat
And the wheat crop was also extremely good.  A different neighbor harvested my wheat with his three modern John Deere combines.  They spent about three days getting my 950 acres cut.  Yields were very high, but quality took a bit of a hit.  The wheat is bleached out a bit due to rains and the protein is lower than usual because the entire summer was so wet and cool.  However, I'm very happy with the results...it was a fantastic beginning to my farming career.
 
Wheat standing and ready to cut
Meanwhile, I continued harvesting with the first neighbor.  I'm not sure on the exact numbers, but I would guess we harvested about 3,000 acres of lentils and about 10,000 acres of wheat.  We had it all during harvest...great yields, broken equipment, stuck combines (me!), great suppers in the field, busy truckers...and I loved every minute of it.
 

I have a lot more updates from the last couple of months.  A hail storm damaged some of my wheat, I spent a few days in Washington D.C. during harvest, we had a combine catch on fire, and I've gotten about half of my crop marketed.  But I'll discuss those areas in future updates.
 
In the meantime...harvest is done!


Trucks getting loaded with grain