What A Month!

You know it’s a big month when cash prices go from around the 15^th to the 95^th percentile in a matter of weeks. Well it was slightly longer than that but the range we are discussing was from mid-April to mid-July and the movement $250/t to $330/t. How many people locked in tonnage at $330/t levels? Or for that matter levels close to this? Did you think (or believe) it was heading towards $350/t?

Chart 1: APW1 multigrade $/t –8 year percentiles Kwinana zone

This chart shows the 2017 APW1 Wheat multigrade cash price in green against percentile levels for Kwinana..

The first four months of the year were not very exciting for cash prices and the risk/reward for forward pricing was not stimulating. The subsequent run up in cash prices occurred exactly when we were rain deficient in WA.

It is important to realise that no crystal ball gave anyone rain forecasts and if there had been a normal break this rally would not have happened to anywhere near the same degree.

While it is OK to admit that you did not know this rally would happen to prices it is not so good to admit you did not take advantage of the spike or missed it altogether. Sometimes, this can happen if you take your eyes off the prize as you are too wrapped up in your current “dry” situation.

In our field we recognise that $330/t is a level that requires a different type of marketing pattern. We understand that once prices get above 90^th percentile pricing levels then production risk needs to be not taken out of the equation but heavily modified to achieve great outcomes. We understand that production risk is a real, and probably the biggest, factor in many pricing decisions but we also are aiming to achieve above average returns. You cannot achieve premium returns if you take the normal approach of conservative pricing with extra conservative production estimates.

We have a saying that BIG numbers require BIG tonnage to achieve BIG outcomes. It is mathematically impossible to achieve great outcomes without securing big tonnage at big numbers. Now this sounds obvious but back to that question, “How many people locked in tonnage at $330?”

Recognising that $330/t is a good number and actually taking action is very hard to do. This is why we are here – to take the emotion away and assist our clients to make the hard decisions.

We understand that many emotions come into play at these levels and in any upward market. Many growers assume that when prices go this high that they will continue and skyrocket. It doesn’t happen !! 90^th percentile means that the prices have only been above this 10% of the time. It doesn’t stay up high and if you are trying to pick the top of the market then you are stuck in the greed cycle and not making good business decisions.

Ten Tigers have an in-house product, Active Price Management (APM) which assists in making decisions based only on the numbers not the emotions.

Disclaimer

Any views expressed in this article are those of Ten Tigers Consulting. The information and opinions within this material are of general nature only and do not take into account the particular needs or individual circumstances of investors. The material does not constitute any investment recommendation or advice nor does it constitute legal or taxation advice. Ten Tigers Consulting (ABN 20 194 919 017) does not give any warranty, whether express or implied, as to the accuracy, reliability or otherwise of the information. Authorisation for derivatives advice (futures and foreign exchange) held by: Chris Tonkin, Authorised Representative No 290288 with Australian Financial Services License No. 329063 held by Ten Tigers Grain Marketing Pty Ltd. (ABN 45 132 654 472).

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.

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.

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 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.

Chart 1: APW1 multigrade $/t –8 year percentiles Kwinana zone

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