You don’t succeed in life by chance. You don’t make the Australian Open final by chance. Even Steven Bradbury famously winning an Olympic Skating Gold medal was not by chance. Sure there was a lot of luck involved but he still had to be in it to win it. As we reflect on last season and begin to focus on the coming year it’s a great time to highlight what did and didn’t work and determine what requires change.
Sales and Profit
Grain sales should not be just at harvest. History shows time an again that only selling at harvest isn’t the most effective outcome for your business. Unfortunately many growers put their grain marketing at the bottom of the decision tree which often leads to sub optimal or average returns.
Are you holding old season grain?
Looking for the magical $10-$20/t rally?
Well you need to seriously consider the risk that basis (buyer demand) will decrease and cash prices will get lower. Basis is currently at extremely high levels, See Chart 1 (approximately $70-$80/t), for the 1718 season.
In a recent 2.5% rally on CBOT Wheat futures, the local cash prices did not move at all.
This is what we call buyers squeezing basis. They are paying a lot for WA grain versus international sources (Russian/Ukraine) and are not keen to keep throwing money away. If they can buy it cheaper from other cheaper sources then they will. This is a simple economic decision for them and is why Asian and Egyptian buyers have bought Black Sea wheat over the past six months.
Achieving +$3-$5/t above harvest values in May to July is not worth it. When calculating the time value, that money would have been far better working in your bank.
Yes we may see a market rally in the middle of the year or even earlier. We hope so! We hope it also carries into the 2019/20 season. In July 2017 we saw prices achieve 90th percentile for both 1718 and 1819 season wheat.
Did your business seize this opportunity?
The market is technically set up for a rally if the stars align and the funds and speculators get “weather” nervous. In recent years this has led to the market over and under shooting significantly which is an opportunity. For 2017 the best cash price for Kwinana was $330/t.
What were you selling for at harvest? $270/t?
Do you want to know how to make an extra $60/t!
To succeed efficiently in farming you must sell at good prices. There is no point being the best farmer and agronomist and having a bumper season if you don’t make a profit. We see so many opportunities in our game and a lot missed with the business of life! Implement marketing plans for all grains to ensure these opportunities are never missed again. Pricing your grain doesn’t just happen you need a plan. You need a target and you need to plan to achieve a great outcome. It doesn’t just happen by chance.