Foodgrains Bank boosters, capitalizing on your commodities

International Development Minister Harjit Sajjan explains why the federal government is such a big supporter of the Canadian Foodgrains Bank, and Andy Harrington, Foodgrains Bank’s executive director, shares how the organization has evolved over time. Plus, investment advisor David Derwin outlines ways that farmers can capture high grain prices while avoiding risk. Hosted by Ed White.

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Ed White: [00:00:05] Hello and welcome to Between the Rows. I’m Ed White, your host this week. Today, we’re going to hear about how farmers can take advantage of high new crop 2022 prices without exposing themselves to the sort of contract defaults that have made 2021 such a nightmare for many. We’ll hear about the relief of the Canadian food grains bank over its core funding being continued. But first, a message from our sponsor

Commercial: [00:00:34] At your Nutrien AG Solutions Retail, we take seed seriously. Getting it right for your farm requires the right knowledge. That’s why we operate the largest retail seed trial program in Western Canada. Our local experts can provide you with advice for balancing maturity with disease traits and getting the best seed to your crop. After all, we take your harvest seriously to talk to your local retail today or visit Nutrienagsolutions.ca

Ed White: [00:01:10] For decades, the Canadian food grains bank has been probably the most visible charity that farmers have supported, whether it’s through a community grow projects or church luncheon fundraisers, the food grains bank has allowed the rural community to help fight hunger around the world. Well, much of its money comes from donations. Federal governments have often multiplied that money, making its impact far greater. However, that money is not permanent and needs to be renewed every few years. Always living in uncertainty, hanging in its future to the relief of the food grains bank. Its government funding twenty five million dollars per year for three years has just been renewed for another three years. Here’s International Development Minister Harjit Sajjan explaining why the government is such a supporter of the charity.

Harjit Sajjan: [00:01:58] Now, the Canadian Food Grains Bank has been a very important partner for Canada’s Humanitarian Works 1983. And in 2019, 2020 alone, you have reached more than 900 thousand people who were living through humanitarian emergencies across 33 countries, including the Democratic Republic of Congo, Ethiopia, Lebanon and South Sudan, and all of them depended on your help. Even before COVID 19 conflict was a major driver of a food crisis. Now, the pandemic has resulted in the single largest increase in global hunger ever recorded. Now, over half a million people are now facing famine conditions. A forty five million in forty three countries are teetering on the brink of famine. And globally, up to two hundred and eighty three million people are living with acute food insecurity must work together to reverse these trends. I just want to say that guided by Canada’s feminist international assistance policy, we are committed to improving nutrition for the world’s poorest and most marginalized, especially women and girls, by giving them better access to nutritious foods and services. The importance of women and girls cannot be under estimated. Many countries, women who plant to food. Work the fields, harvest the crops and then cook the meals and far too often. They are the ones who eat last and eat the least.

Ed White: [00:03:45] Here’s Canadian Food Bank Executive Director Andy Harrington talking about the organization’s evolution

Andy Harrinton: [00:03:51] And its very beginning Canadian food grains bank began with a dream the dream that one day everyone in the world would be able to get enough to eat. For the prairie grain farmers who helped to found the food grains bank that people should be starving to death in the world of abundance was an absolute disgrace, and they were practical people who weren’t about to sit idly by. Instead, they were determined to put faith into action and win a way to make their vision. A reality didn’t exist like farmers do. They came together to make it happen. I’m always inspired by how this organization came to be from our roots with business owners and farmers on the Prairies today till today. As one of Canada’s leading humanitarian agencies made up of 15 member agencies working with their partners in our joint mission to end hunger, now we’re still strongly supported by those same farmers, and now we’ve been joined by thousands of other Canadians in churches and communities across the countries. And what adds to how remarkable this story is, is that our Canadian government came behind this idea of a world without hunger from the very beginning. And for almost 40 years has provided ongoing and constant support to the notion that every person in the world deserves enough to eat. As a Canadian, despite this accent, I’m proud that the commitment of my elected leaders and civil servants have joined with us to end global hunger, and I’m proud that that commitment has stood the test of time.

Andy Harrinton: [00:05:27] Sadly, as the minister noted, the enormous need that exists in the majority world for emergency food, whilst once on a decline for a number of years, is rising once again. Climate change is leading to more natural disasters. I’m speaking to you from southwestern British Columbia in the middle of the Fraser Valley, where we’ve recently experienced one of those. There are more people living in developing countries who are vulnerable. Conflicts in places like Syria and South Sudan are leading to food systems failures and the inability of people to get enough food for their families in the ways they once could. And of course, as we’ve all experienced, the global pandemic has led to disastrous economic consequences for the people around the world. None more so than vulnerable people already living on the edge of hunger because of the support of the government of Canada. Our members have been able to provide support for people around the world affected by these food systems. Failures in emergencies and the efforts of many thousands of Canadians who support the food grains bank have been amplified through the grant.

Ed White: [00:06:43] Farmer Jan McIntyre talks here about her commitment to the charity

Jan McIntyre: [00:06:48] As a donor, I find it to be a powerful statement that 15 Canadian church and church based organizations overcome theological differences to work together in partnership through the Canadian Food Grains Bank to offer assistance to those who are living with hunger. I also greatly appreciate and respect the Canadian Food Grains Bank approach of working in partnership with local partners and organizations already present in a country. With those who understand the particular challenges relevant to that area and who carry a long term commitment to the region. Not only does this approach bring practical value, it also respects and offers dignity to the people of the countries and communities we know.

Ed White: [00:07:43] What does all the fundraising and commitment from Canadian farms, rural communities and across the country help achieve in the long run? Here’s the minister Sajjan take

Harjit Sajjan: [00:07:53] Because every child has a gift to offer this world and have an impact. But what they what they don’t have is the opportunity that we have here in places like Canada. And I always look at it as it’s not that we’re just trying to help. We will help ourselves when we help these kids because you never know what type of gift these kids can offer the world or to or to their community. And so when I look at the work that’s being done, it’s not just about providing food, it’s about setting it, creating a future for these children and the impact that they’ll have for one another. Because you know that the work that they’re doing now and the impact it has on, on, on families, that they in turn will later on when they grow up, provide the means and to be able to help others as well.

Ed White: [00:08:47] This is Between the Rows. 2021 has been a great year for crop prices. That’s fantastic if you’re a farmer with a lot of crop. But for thousands of farmers, twenty twenty one brought a terrible drought and dreadful yields. Many who signed grain contracts logging in. 2021-22 prices found they didn’t have enough crop to meet the contracts and had to buy themselves out at very high prices. Right now, new crop 2022-23 prices look very attractive, but farmers are understandably anxious about committing to anything in the wake of the drought. I spoke to advisor David Derwin, a PI financial, about how farmers can take advantage of the prices without exposing themselves to too much risk. 

So David, in 2020-21, a lot of guys took out contracts and got into positions that in a, you know, normal ish kind of year would have been absolutely fine. But they found themselves in in the drought and with the wild price action getting caught out either with production or prices or both. And I’m wondering from your perspective in dealing in this area, what have we learned about marketing in the last year?

David Derwin: [00:10:20] Well, certainly no one’s going to forget last year. And like any business, especially a farming business which is so impacted by market, both on inputs and on output, it’s all about having flexibility and being adaptable, and it’s about having options and pardon the pun. But options marketing options like having access and using an understanding call options, using put options, giving you that flexibility. And what I think we’re going to continue to see, and we certainly saw it last year, is that having those options in place really let you have an alternative to simply just. Pricing physical, you know, deferred delivery contract that really gave me way more latitude in how you’re going to approach it. So if you’ve got options and you write prices, you know when canola got to, you know, be at 600 or 700 or 800 or eventually 900, those prices were very enticing. And I think if you had the ability to look at that and say, Okay, if I am going to price some grain, maybe what I’ll do is I’ll look at buying some calls to protect my production and to still benefit if there’s any upside. And that would be a way to also offset any bias that may have occurred. Could all see options in a similar matter instead of pricing that grain, you could buy some put option. So you’ve got the downside for price in place, minimum basically minimum floor price protection kind of like price insurance, but you still have all the upsides. And most importantly, you haven’t committed any of your grain. So you really want to have that flexibility to separate your pricing decisions and your delivery decisions. And I think that is going to be always has been a focus of mine and an area that I really believe we can help clients with. But going forward after this year, certainly more and more and people are going to take note of that and start to look at how they can be used.

Ed White: [00:12:24] So we’ve got a winter. Normally, it’s a pretty heavy marketing season over the winter, but this year there there may be less because there’s just less crop in the bin and certainly from what we’ve been talking about, a lot less, which is not already been priced. But I guess as we look forward to the 2022-23 new crop year and pricing for that which a lot of people probably are going to start doing at some point, how do we approach that with what we learn this year, the dangerous we saw and the sort of unique, still droughted circumstances where we’re operating in?

David Derwin: [00:13:04] Yeah, and that is a conversation that already I am having with people for next year, and indeed this year’s crop isn’t necessarily fully in the bin, right? If you’re still harvesting beans or corn or whatever it might be. But that is a conversation that we’re having already for next year. And it still comes back to that same point about having that flexibility and having options and in particular using put options call options to do so. Because prices are very good, they’re still trending higher and well. I think one can be patient and there’s no rush. Instead of just like here’s a perfect example, some client calls in from Alberta and was looking at some very, very good prices for new crop wheat for next year. So we start looking at that and said, Well, here’s a couple of things that you can do, right? You don’t necessarily need to lock in with the elevator, commit your production when we’re still like you point out having dry conditions, low stocks. So we don’t want to give out, you know, give up on any opportunities to the upside. But just as important, you don’t want to expose to too much risk on the production side.

David Derwin: [00:14:15] So the same thing can apply if you’ve seen some very, very good basis levels, you know some very good cash bid, maybe do some up to the level only that you’re comfortable with, but then you can always turn around and add on to that. Some call option strategies that protect back to some extent if it goes higher. This way, you don’t have to deal with any kind of, you know, buyout situation or concern on production. Likewise, markets also have put options for the downside, where you can lock in a minimum floor price. Less the basis, of course, but at least on the futures, you can have some downside protection in place. And if it goes up higher and higher and higher and you’ve already spent. You know, a certain amount on premium. Well, that could be the best money I’ve ever spent, given that you don’t have to deal with the. Risk on the production going into another year, which in many areas has been very dry for a few years in a row.

Ed White: [00:15:22] And I know it’s as an option specialist, you know, a year ago you were recommending people take options positions and that they were, you know, well-suited for an environment like this and options are always a hard sell on the average average person. I’m wondering, though, after the experience of the last year, if if people that you’re talking to this fall are more open to exploring the role that options could play in their their hedging strategies?

David Derwin: [00:15:55] Yeah, definitely. There has been an increased and interest that in it and also people looking at having an account set up and in place so that they’re ready to go and make some of those additional marketing decisions. It’s all about having more tools in the toolbox and people who use them. I mean, some clients have been using for years and quite happy with the strategies and the process and how options fit into it for new people. I really believe, and I’ve seen it already for this past year, has been a bit of an eye opener in terms of making sure that you’ve got all. The marketing tools that are out there available to you because they don’t want to go through that again, I’ve had some people say, You know what, I’m never going to forward price any grain again, which might be, you know, a bit of an extreme reaction. But that sentiment and that feeling and that concern going forward, they’re going to be much more leery. So if we can provide them with another tool to use, then. All of a sudden, it makes some of those pricing decisions a lot easier because you don’t have to worry about your production risk, and that is going to be very, very important going forward. It puts more pricing power in the hands of the farmers.

Ed White: [00:17:10] Yeah, I guess there’s one you could take is say, I’m just never going to price anything ever again. Ahead of being in the bin. The other is to find something like options contracts, which give you a chance to protect some prices without that exposure risk of not having the crop or being sort of wrong priced. All you’ve got at risk is the premium with options.

David Derwin: [00:17:39] Exactly, and I saw that all last year where, you know, you always want to work in increments, right, whether it’s 10 percent, 25 percent, a third of your crop, whatever it might be, but you have a certain amount that you’re comfortable pricing. I think when prices got really high and we could see a replay of that again going forward, but when pricing got very high, it’s very enticing. But. You don’t want to have a situation where you don’t want to do anything because it’s, you know, we could see a replay of the dryness and the drought, but you also don’t want to let these high prices pass you by either. So it’s a balance and it’s a balance of strategies, right? And it also works in conjunction with your. With your storage plan, how much room do you have to store your grain? A lot of clients can store all of their production, so that gives them even more flexibility when they can really not have to worry about delivering just for cash flow. If they don’t need it, they’ve got a place that they can store it. So it all works together, but definitely on a go forward basis. It’s going to give them that comfort and confidence that you or other tools out there. If we don’t always have to do the same thing and get too caught up in that, you’ve got flexibility. And again, I saw this year where people who either replaced their their sales or I just bought puts instead in. Then canola went up another $200 a ton. Well, that’s, you know, the put option premium you might have invested in is more than made up for. And the fact again, that you don’t have to have your production committee to be elevated. Big benefit.

Ed White: [00:19:20] Well, thanks very much, David, for taking us through this, and I guess I guess we’ll see how it unfolds.

David Derwin: [00:19:25] Always a pleasure. Thank you very much.

Ed White: [00:19:43] That was David Derwin of PI Financial in Winnipeg. David’s views can be often seen in his column in the pages of the Manitoba cooperator, and I often quote him in my column in the Western Producer. That’s all for this week. Join us again next week for another edition of Between the Rows. I’m Ed White and it was my pleasure being your host.

Commercial: [00:20:15] At your Nutrien AG Solutions Retail, we take seeds seriously, getting it right for your farm requires the right knowledge. That’s why we operate the largest retail seed trial program in western Canada. Our local experts can provide you with advice for balancing maturity with disease traits and getting the best seed to your crop. After all, we take your harvest seriously to talk to your local retail today or visit Nutrienagsolutions.ca

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