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?