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Risky business

Ray Grabanski helps farmers manage risk. Part of that job is helping them decide when to sell their crops. "We give farmers our best opinion of what's in their best interest," said Grabanski, president and principal owner of Fargo-based Progressi...

Ray Grabanski

Ray Grabanski helps farmers manage risk. Part of that job is helping them decide when to sell their crops.

"We give farmers our best opinion of what's in their best interest," said Grabanski, president and principal owner of Fargo-based Progressive Ag Marketing.

Grabanski once served as a farm management specialist for the North Dakota State University Extension Service.

That experience convinced him of how important marketing and risk management are to farmers.

Progressive Ag Marketing, launched in 1992, began emphasizing crop insurance in addition to marketing in the late 1990s.

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Most of the company's eight employees have an extensive background in agriculture, which provides invaluable insight into farmers' needs and situations, Grabanski said.

Progressive Ag Marketing is a licensed commodity brokerage office.

It can trade futures and options on grains and livestock. Occasionally, it has a client who wants to play the gold or crude oil market.

Most of Progressive Ag Marketing's work comes in the upper Midwest, although it also has clients in Canada and elsewhere.

Q: How would you explain what you do to nonfarmers?

A: We try to help producers identify risk in their farming operation and to decide which risks to take and which risks to pass on to someone else at a reasonable price, and to identify those prices, through crop insurance or futures (or other tools).

Q: Why are prices of many crops at or near record highs?

A: Crude oil futures are driving a lot of things right now.

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Many people believe grains are going up because of what's happening in crude oil and what's happening in U.S. dollar values. The Canadian dollar is at a premium now to the U.S. dollar.

All of those things are interrelated.

When our dollar declines, it makes crude oil prices, in U.S. dollars, go up. It makes all commodities, in U.S. dollars, go up.

Of course, higher oil prices drive up the cost of inputs such as fuel that farmers use.

Q: Supply and demand is part of it, too, right? Grain prices were low, which cut into production. And demand is growing.

A: Yes, prices were low. Producers worldwide were having a difficult time making money producing commodities at those prices.

We've consumed more wheat than we produced for seven of the last eight years in the world.

When oil prices rose, biofuels became a very viable option. That just further drew down (grain) supplies.

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On the demand side, the Asian countries are buying more food from the United States.

Q: How many farmers use marketing tools such as options and futures?

A: I would estimate 30 percent to 40 percent.

Q: What was the percentage when you started in 1992?

A: I'd guess 20, 25.

Why the increase? Are farmers just savvier?

I think they're more educated. Not only about the tools, but also the situation that will work best for them.

Q: Some farmers sold a portion of their crops well before harvest. A: That strategy had mixed results, right?

In the case of corn (prices), we actually peaked about April for this crop year. For wheat it was much later - August and September.

For soybeans, we're peaking now.

Q: Should farmers be selling a portion of their 2008, '09 and '10 crops now?

A: There are a lot of things to consider in risk management.

For example, land that you're renting - you better make sure you have it locked up through that time frame.

Or you might be selling commodities in a highly inflationary situation for your inputs.

You might be selling what you think is a profit out that far, and as the time comes along you might find that it's not.

Q: Farmers complain that current prices really aren't so great when inflation is taken into account ... .

A: I heard an economist who compared inflation-adjusted prices.

The all-time inflation adjusted high for wheat would be around $24 per bushel, which I think occurred in February of 1974. We hit $9 (recently). So on an inflation-adjusted basis, the grains could have a long ways to go yet before they reach their highs.

Q: Farmers have had some lean years in the past few decades. Is this a catch-up period?

A: Their return on investment was quite low for a number of years. Maybe this year is payoff for all those years of struggling.

Q: It's more fun for farmers when prices are good. How about for you?

A: It's fun. But the stakes are higher, too.

Prices are good, and that's a good thing. But the inputs cost more, too. So there's more uncertainty.

Readers can reach Forum reporter Jonathan Knutson at (701) 241-5530 Risky business Jon Knutson 20071126

Related Topics: AGRICULTURECROPS
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