Miscellaneous
The nature of the Australian grain producer is a varied and wonderful thing. So too are marketing strategies. Due to the many years of regulated markets and single desks the Australian grain producer and associated government departments were wired to focus on producing the best possible crop they could and leave the marketing up to the statutory bodies. We still see evidence of that today with yield being a big driver of the grain producer’s motivation for what they do. It is further demonstrated from an observation perspective that growers’ spirits seem impacted more by yield results than profitability. The higher the yield, the better the spirits irrespective of the gross margin achieved. A few points on marketing that need to be observed; grain marketing is all about managing risk and reward. The price, production and profitability risk against the reward of the final sales revenue for the production achieved. And, unlike a trader who can buy or sell depending on their market view, a grain producer effectively only gets one shot at selling physical production. Yes, we can break price down and fixed the individual components of futures, basis and foreign exchange or we can hedge in different months on the speculation of protecting prices. But at the end of the day a final price is achieved for the sale and one-time transfer of a fixed parcel of physical grain. An important message in this is if you are hedging using any derivative type produce, at the end of the day there is a physical commitment to offset the hedge. If you aren’t committing physical grain in one form or another, you are purely speculating the market.We continuously see different marketing organisations producing and marketing products and strategies with associated discussion and evidence as to the effectiveness of the strategy over time horizons of numerous seasons. While a high average return over a certain time horizon using one strategy or another is good, it does discount the impact of the poor performing years. Each year the markets behave differently, and the seasons production varies; so, the question is why any single strategy would be applicable to every season. A rule in grain marketing is “price always has location”. What gives price location is its relative difference to another pricing point or what is defined as basis. So, even at a farm gate level markets and prices are impacted purely on the quality and quantity of grain being produced on farm, its costs to move and store, and the supply demand relative to other regions, expanding all the way up to a global perspective. Therefore, with the seasonal differences in the markets behaviour why would we expect a certain product or marketing strategy to perform consistently well from one season to the next. In the Australian market today we have many forms of grain marketing strategies and what I like to call levers available for you to activate in your marketing; we have pool providers, we have cash buyers, we have derivative strategy wholesales, we even have marketers that purport to be able to predict with some certainty what value grain will have in the future. There are marketers that recommend selling on the decile value of grain, we have marketers pushing pool products, we have markets chasing selling 100% of production at the top of the market and even spread sellers.Our message is that grain marketing isn’t easy and it is important to have all the levers available to you to effectively market your grain over the longer term. The market will generally show signals of what the best lever is to pull in any given market circumstance and markets are very rarely the same. Individual growers’ requirements also very based on business structures and cash flow requirements; so one single marketing strategy will never consistently provid