Current Decile 1 or less prices for wheat and barley are presenting some challenges for marketing this year’s cereal crops. By contrast, Decile 6 prices for canola, combined with what appears will be above average canola yields for many clients, will make harvest selling decisions easier for canola.
There appears to be much talk amongst grain growers of refusing to sell at such low prices, instead holding stock until prices improve. While it would be nice to believe that one could influence world grain prices, the reality is that to be able to sometimes sell at Decile 9 prices, one also has to sometimes endure Decile 1 prices.
Returns from the 2016 crop will be largely determined by world grain prices, due to the size of the Australian crop relative to domestic consumption.
The best thing for low prices is low world grain prices, as northern hemisphere producers will switch from cereals to other crops, which in turn will reduce global grain stocks and drive prices higher.
If the supply of grain for sale at harvest is restricted due to mass withholding of grain from the market, harvest time may well be the best time to sell, as buyers bid higher to secure grain.
Grain buyers will know that most of the grain stored on-farm or warehoused in the central receival system, will become available in the short to medium term, as growers require cash flow to fund next year’s crop.
Storing grain without target prices or a plan is not wise marketing. Thought needs to be given to how and where to store grain for later sale, especially lower grade wheat and feed barley. These grades of grain should ideally not be warehoused in the central receival system, if the target or likely market is domestic, due to the supply chain costs involved. The domestic feed grain market is best targeted by growers from on-farm storage, provided it is sound and has all weather access, plus the quality or grade of grain can be assured.
Counterparty risk is a real issue for those selling ex-farm to the domestic market, compared to selling to large well known or ASX listed entities from the central receival system. This risk requires management.
A recent entry into this risk management space is NCI Trade Credit Solutions, with a debtors insurance scheme tailored for the grain industry. Premiums commence at $7,000 + taxes and fees for $300,000 liability. More information on this credit insurance grain scheme can be found at www.nci.com.au.