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:
- Review your strategy
- Reset target levels
- Know your numbers
- Have a clear and concise plan. Reduce the emotion.
- Identify all the new opportunities in your port zone.
- Nominate to contracts correctly. This is a money maker.
- Review new Quality Optimising rules
- Develop a market view for all commodities.