General Grain Marketing Information (November 2011)
Wheat Pools
For many growers wheat pools are an important part of their marketing strategy. Wheat pools allow income to be spread over two financial years, while allowing the final price to be averaged over a 12 to 18 month period.
Some key points to consider before selecting a pool operator and pool payment type are:
The decision to pool is more important than which pool is selected.
The pool provider should probably be chosen on previous record of performance rather than current pool estimates, which may be an unreliable indicator of how the pool will ultimately perform.
Where a significant tonnage is to be pooled, dividing the tonnage between two or more pool operators will reduce the exposure to a poor performing pool.
It should be noted that the EPR, interest charges, storage and freight rates are estimates only, and may vary as sales are made from pooled grain. Therefore final pool returns could be quite different from current estimates.
Before selecting Advance Payment or Harvest Payment options, growers should compare the estimated interest charge with their own bank finance interest rate. In some cases it is cheaper to borrow the money from a bank and use the Distribution Payment option.
Freight rates may vary between company and between sites.
Management fees and underwriting fees may vary between pool providers.
Premiums paid for protein screenings and moisture may vary between companies.
Cash v’s Contract Prices
Differences between the best cash price posted on the board and available contract prices need to be monitored closely.
Cash prices need to be set by close of business the previous day, hence they do not reflect movements in international markets over night. By contrast, contract prices for any given day are released mid to late morning, and therefore reflect the previous nights trading on international markets.
This can be an advantage or disadvantage to the grower, depending on movement in overnight grain prices. If the contract price on the day is higher, obviously it should be taken over the cash price, but if the cash price is higher, there may be an opportunity to pick up a few extra dollars before the buyer pulls the price from the board.
For grain that is initially warehoused, the cash price of the day can be taken up to midnight for warehouse transfers on the day of delivery.
When contracting grain, the specific site price should be set rather than a port based price less freight, the freight component of which may change. Not all grain buyers use GTA Location Differentials.