Remember the Big Picture

Posted in November 2016 - in , ,

Headers are well and truly rolling, even though for many it has been a later start than normal.  Much time and money has been spent in the last few months getting harvest ready to ensure maximum workload efficiency.  Have you applied the same level of maintenance to your grain marketing plan?  The expense of this year’s inputs and labour has been far too great to not have a marketing plan.  The selling is where the fruits of your hard labour are truly realised!

Every year at harvest you will see a bucket load of fresh marketing strategies to “maximise your returns”.  Direct to Vessel (DTV), domestic bypass CBH, funky pool options with new and improved payment and selling strategies and so on.  Most of these ideas are plausible for marketing your grain, but often it is best to keep it simple.  The plan involving two dice and a roulette wheel may not fall in this category.  What considerations do you need to make now to ensure your returns are maximised?

TIMING

If a marketing product is selling your grain between harvest and a specified time in the future then they are all selling into the same market.  With wheat prices at lows right now, the future will hopefully be up from here.  The big question is, when will it increase?  In one, three, six months or longer.  If you think this market will recover in six months or longer, then there is no point committing grain to a product with a three month window. Ideally, pricing decisions should be made based on price and not dictated by time.

PAYMENT

What are the payment terms and will they fit my current business requirements?  If you need cash at harvest, there is no point in utilising a product that offers deferred payment.  Alternatively there is no point filling the bank account at harvest if you need to defer cash into the next financial year.  It is also worth bearing in mind,

if a company has no experience in selling WA grain, then will it actually work, and more importantly, are they financially secure?

Be aware of how you can protect your property (including grain ownership) via the PPSR (Personal Property Securities Register). There are a number of cases where this should be considered. Please talk to a professional about this process.

POTENTIAL

If all the products are selling into or pricing off the same market then the potential promise of what the returns could be should match closely to one another.  If it seems unrealistic it probably is.  $300/t for wheat is not realistic unless you are using the two dice option!

OPPORTUNITY COST

Selling your grain later in the year is not necessarily a bad option but there are obvious costs involved.  If you are running a big overdraft then this is a very realistic cost.  Taking your returns six to twelve months or more after harvest needs to fit your cash flow, taxation and banking requirements.  If cash is now $245/t and in twelve months you get $255/t after costs, then this is likely not worthwhile.  Look at the potential premium after costs and then calculate your opportunity costs of not having access to those returns.

Remember, you can sell your grain over the next twelve months.  It is not something Ten Tigers recommended last year, but if it is part of a regularly revised strategy then the risks can be managed.  Our clients set target prices and we watch and act on them daily.  If the market increases then they will achieve the higher prices as well, if not better than an entity with a fancy logo and marketing promise.

Marketing is about setting your business in a place to realise opportunities and to take action on them.

Over the past month CBOT wheat futures have increased (and then decreased) on the back of short fund covering together with a few weather hiccups along the way.  We have estimated about  5 MMT has come off the WA crop in the past one to two months on account of extensive frost damage and water logging. Global supplies however continue to grow and a lot of export competition is coming from Russia, Ukraine and Romania. Quality is still quite unknown across Canada, US, FSU region and Australia so this has been helping keep buyers keen to hold basis at reasonable levels.

Local WA wheat prices have remained fairly stagnant demonstrating strong basis (buyer demand) levels. As can be seen in this chart we are starting to see basis decrease a little as buyers start to get closer to understanding the crop size in the eastern states in particular. They will be very keen to get throughput in ports that have not seen a lot of action in the past three years. It is highly likely that this grain will compete heavily against WA grain into Asia and will be discounted which puts pressure on our prices.

Bank swaps have been extremely useful in hedging grain at good levels this season, not to mention easing the stress associated with 10 year low pricing levels.  Do you really understand this tool?

Things to do:

 

What our customers have to say
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.
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.
In the ten 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 g details into our accounting program very simple and quick.
Ten Tigers has been my grain marketing advisor now for a period of 12 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.
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.
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