Warning: Attempt to read property "ID" on int in /home2/tentiger/public_html/wp-content/themes/ten-tigers/templates/content-single.php on line 1

Warning: Attempt to read property "ID" on int in /home2/tentiger/public_html/wp-content/themes/ten-tigers/templates/content-single.php on line 2

Old Season Grain – What To Do?

Posted in May 2016 - in

Anecdotally, the 2015/16 season unsold grain estimates have been quoted as high as 25% – 30% state wide, which equates to around 3.7MMT. Add this to the increasing potential of new season production plus estimates of 2 MMT carry out from October 2016 and it plays right into the hand of the trade.  Lots of supply, not much demand, hello Economics 101 !

This season we have seen a reduction in the number of forced sellers, ie; growers having to sell grain to realise income to pay down debt or bills.  This is great news for agriculture, as the financial health is rebounding.  However, do not become complacent.  We have seen the market come off close to $40/t since the peaks during harvest.  Not selling because you have your cash flow under control or not selling to reduce tax is potentially going to cost you more in the long run. It is not a plan.

For example, back in the middle of January you could have sold APW1 in Kwinana at $295/t. You did not sell because

1) It was not $300/t or

2) You did not need income in this financial year.

The tax saving equation is different for all businesses.  However, you do need to consider the opportunity cost of both the target $300/t and the tax decisions.  At the end of April, the Kwinana port price for APW1 was $275/t. This is a difference of $25/t. Would the savings you would have made from your tax be worth $25/t?

This is certainly a question you need to discuss with your accountant as early as possible after harvest.

Prices have now moved up $10-$15/t into mid-May which is certainly positive. This is due to a shortage of APW1 (strange I know) in the Kwinana zone and a couple of buyers requiring this grade for shipping before the end of June. They are actually paying less for deferred delivery and payment in July. Again this is something to consider when setting targets. The $AUD downward movement in the last month has also certainly helped this increase in cash pricing.

Do not rely on shipping slot shorts now or into the near future to give the market a $10 to $15/t spike, as seen in previous years prior to the introduction of the Long Term shipping Agreements (LTA’s). These spikes will not happen. You need to start thinking in terms of where the market really is at the moment. It is under pressure and upside from here will be limited.

Income deferral scenario:

Post-harvest (December – January), your accountant advised all remaining grain income needs to be deferred until July. Firstly, be certain your accountant makes you aware of your accounting selection – Cash or Accrual and secondly, that grain sales to date have satisfied all cash flow requirements.   Whilst currently you may not be a forced market seller, this doesn’t mean simply pricing the grain in July.

Key considerations:

When looking at this chart in Figure 1, ask yourself – what is going to push prices back to above January levels?  The $AUD or buyer demand?  We don’t know what the $AUD will do but we can assume buyers have plenty of most grain grades to source.

It’s now time to review unsold grain target levels, in line with your average $/t grain sales to date and to bring them to realistic market levels.  Given how market levels tracked last year, 50th percentile $/t average results are only achievable if you have had a good plan in place from early 2015. Be aware of where grades have peaked since January and also consider the differentials between zones.

And then there is 1617 season pricing to consider at all times too!

Figure 1; Best daily APW1 price all zones (Jan to May 2016)

 

wpDataChart with provided ID not found!

 

 

What our customers have to say
Ten Tigers has been my grain marketing advisor now for a period of 17 years. I have entrusted Chris Tonkin and his team to assist and direct me in the selling of my grains to suit my needs. With their experience, knowledge and regular contact and updates, I have been able to concentrate on the physical and practical side of farming without the added stress of watching the markets and possibly making wrong decisions. Allowing Ten Tigers to be my “personal broker” has put me in a position where I can relax, travel and profit from my every day farming life.
We decided to engage the services of Ten Tigers because we found we were becoming increasingly overwhelmed by the grain marketing decisions we had to make. We were sometimes making poor decisions because we had become indecisive and didn’t have clear target prices in place. We have found the staff at Ten Tigers an absolute pleasure to deal with. They are proactive in keeping lines of communication open and the paperwork they provide us with is easy to understand and very useful. The advice Ten Tigers has provided exactly what we needed. They have helped us set and reach targets and we have already seen the benefits of the grain marketing strategies they helped us put in place.
Ten Tigers is a business that specialises in grain marketing and consulting. We use Ten Tigers to help us achieve the best price for our grain, to find out what is happening in the world’s grain market to date and to help with marketing strategies. The best thing is, all this can be achieved by just a few text messages per day and / or a quick phone call while I stay busy growing as much grain as I can. I find them a great deal of benefit to our grain farming business.
Ten Tigers has helped our grain operation grow through a well-balanced marketing program of all our grain types in the current season and beyond. Ten Tigers has given me a greater understanding of our grain business through a fully transparent summary at the completion of each marketing season. Ten Tigers has given our business confidence to expand grain production by allocating achievable pricing target levels on all our grain types. Our business can better allocate time towards the production side knowing that Ten Tigers is managing our marketing in a professional, unemotional manner.
In the seventeen years we have been working with Chris and his team there has been a huge transformation in grain marketing in our business. Ten Tigers has made these steps a comfortable journey instead of the hill climb they appear to be when we receive correspondence from all different grain identities and our legal obligations we need to meet. Ten Tigers has assisted us to achieve higher daily prices regularly with good communication and sound advice. Ten Tigers has been an important member of our business allowing us to concentrate on growing our grain with the knowledge that Ten Tigers is there to worry about the marketing, optimisation and filling of contracts. The very detailed information that is supplied to us makes record keeping and entering  details into our accounting program very simple and quick.
Sadly, your browser is out of date!

Click the button below to check out newer, awesome options. Update my browser now

×