Since the deregulation of the domestic wheat market in 1989, market volatility has become a challenge for grain farmers. Deregulation of the Australian Wheat Board export monopoly in March 2008 added to volatility in prices by exposing growers to both domestic and international market movements.
There have been 27 crops since domestic market deregulation and there are clear trends in marketing approaches that need to be heeded.
Firstly, higher than average prices at harvest is not necessarily a market signal to sell the entire crop at once. Secondly, lower than average prices at harvest are not a market signal to warehouse or store the entire crop at harvest and wait for prices to rise.
Three key reasons for adopting these approaches are cash flow needs at harvest; lack of research on relative values, hedging and basis; and lack of account for the forgone interest cost that could be saved on debt or received on cash deposits if the grain is stored post-harvest.
The correct mix of selling options must be implemented each season to maximise returns. But to know which options to take, growers must continuously monitor regional and global supply and demand dynamics, and understand the relative pricing of grain to other places within Australia and to other grain producing countries in the world.
If these pricing signals are understood and growers have all the latest and relevant information at hand, they can decide the best mix of marketing options to implement. However, Market Check’s Managing Director Brett Stevenson believes his business has grown due to “more and more growers outsourcing their grain marketing to companies like Market Check as we are now in a truly globalised market place.
Market Check advocate a marketing mix that may include a combination of forward selling or hedging, harvest selling, holding flat price or hedged grain post-harvest, and incorporating options both pre-harvest and post-harvest. Going even further, understanding domestic supply and demand dynamics (and trading domestic grade/location spreads) will also help increase overall value of grain produced – but these strategies are harder to implement for individual growers.
For example, stock can be swapped from one port zone that may have burdensome stocks, to another port zone that has tighter stocks and therefore greater upside in price potential post-harvest. Stock can also be switched between grades selling premium grades, and replaced with more “undervalued” grades that have greater upside potential post-harvest, say ASW1 for example.
Market Check says it has been implementing these strategies in their Strategic Pool since inception in 2011. Brett said “The Market Check team run the pool as a national collaborative program offering participants access to arbitrage opportunities within and between different states, port zones and grades. This is a key reason why we are the number one consistently performing pool in Australia”
Alan Crook, a farmer near Ouyen Vic, has been using the Strategic Pool for 5 seasons and said, “They’ve been a great addition to my marketing program, adding value, simplicity and security to my enterprise.”
To extract optimal returns, over time, Market Check stresses that growers must adapt to volatile markets and implement the right mix of marketing options each season.
Call a Market Check advisor today on tel: 02 9499 4199 or go to this link: http://go.pardot.com/l/413732/2017-09-15/n56j9y