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!