GROWERS looking to get the best out of their grain marketing must look at more than just the pricing component, according to commodity analysts Market Check.
Speaking at a recent grower seminar in Melbourne, Market Check’s general manager Tom Basnett said farmers were realising that there was much more to marketing than price discovery.
“Price discovery is just the tip of the iceberg, its important to be able to match up your grain with the customers that want it the most.”
He said with the current Australian market geared towards exporting bulk shipments of wheat, there were opportunities in smaller niche markets that also need to be serviced, while other marketing tools such as online clearing houses can also play a role in allowing growers the chance to maximise returns.
But it is not the sale itself that is important, Mr Basnett said growers needed to look at pricing tools such as hedging and bank swaps as an alternative to traditional methods such as physical sales or straight forward contracts.
Market Check managing director Brett Stevenson agreed, saying hedging worked out better for growers nine times out of ten as a way of locking in price during the growing season.
Mr Stevenson said not all marketing needed hours of study – and simple tools could be of help.
“For instance, a little rule to follow would be not to sell when everyone else is – it’s something that makes common sense, but not everyone adheres to.”
He said he believed the trend of lower basis for Australian grain off the header in November would continue into the future and growers needed to factor this in when making their sales.
“You look at canola last year, there were some great opportunities, the basis held up really well into November, even though the international price was falling.
“Growers had an idea what their yields would be, so there was scope to lock in some contracts in the weeks leading up to harvest.
“Those that did something like this would have profited, as the prices did come back once harvest began.
“The key is to sell when the market wants it.”
Unlike many analysts, the Market Check team still believes there is a place for pools, however they saw a changing face to the traditional pool administration.
“We’ve run small-scale pools of our own, but we just think it is unrealistic to offer an estimated pool return, it comes down to pool participants trusting the pool manager,” Mr Basnett said.
He said he believed there would be a swing away from merchant-run pools to more boutique style, managed investments, tailored to what growers wanted.
“There will be some who want a solid investment, and others who are happy to opt for a riskier strategy, but I’m not sure there will be as many large-scale pools in the future.”
Mr Basnett said another area for growers to monitor would be the terms of contracts.
“For instance, with wheat contracts, it will be worth looking at the spreads between the pay grades.
“At present, with a $50/t penalty down to feed quality, you are best off with a floating spread that can be locked in later, as we’d say that spread will come in.
“Basis is another area where farmers can control what they lock in, and can exploit to their advantage – the key is to remember there is more to it than just price alone.
“You look at the current situation – and you see a price rise, maybe that has interested some growers, but you look at it more closely and you can see the basis has failed to pass on the full lift in American futures, so you shouldn’t be locking in a straight physical contract at present.”
In terms of the current season, Market Check economist Steve Powell said the relatively tight coarse grain stocks, combined with the emerging drought situation in the US meant possible opportunities for lower grade wheat.
“Perhaps we could see wheat competitively priced against corn into feed rations.”
He also said while the focus has all been on America, that the situation in Russia, Ukraine and Kazakhstan may be a key player on prices in the next few months.
Yields have been downgraded due to dry conditions in the Former Soviet Union (FSU), and could be scaled back further.