Written by:

Nic Sewell | Grain Marketing Advisor | 0436 606 525

 

This week CBH finalised the 2021/22 Harvest Pools. This is of particular interest to us as the Pools were strongly promoted to and used by Planfarm Marketing clients. As outlined in several Newsletters pre and during harvest in 2021 (November 11 2021 & January 21 2022 to name a couple) we had three main
reasons to promote these pools strongly, which were;

1. International grain prices were well above local cash prices, due to the massive local supply and huge international demand enabling our exporters holding shipping slots to generate huge
   profit margins.
2. The Pool had access to a lot of shipping slots via CBH M&T’s long term agreement which had to be shared between the Pool
   book and the Cash book.
3. CBH Pools are mandated to return all grain sales equity to participants, minus a fixed fee of about $10/t. A lot less than the margins
   being made by cash traders.

Graphs 1, 2 and 3 compares prices for ASW1, CAG1 and BFED1 in Kwinana for the last 9 seasons for CBH Pools (grey diamond) against cash prices for the three-month harvest period (blue), cash prices for the 18 month marketing period (green) and cash prices for the 6 month post-harvest period (grey). Most years the CBH Pool is similar to the cash price averages but last year the 2021 Pool significantly outperformed the
cash averages.

Graph 1. ASW1 Kwinana price comparison from 2013 season to 2021 season

Graph 2. CAG1 Kwinana price comparison from 2013 season to 2021 season

Graph 3. BFED1 Kwinana price comparison from 2013 season to 2021 season

Graphs 4, 5 and 6 provide a similar analysis for wheat (ASW1), barley (BFED1) and canola (CAG1) in Kwinana. In these graphs the spot cash price is the blue line, the light green line is the No 1 Harvest Pool and the dark green line is the No 2 Harvest Pool.

Graph 4. ASW1 Kwinana cash prices and No 1 and No 2 Pool returns for Sept 2021 to Sept 2022

Graph 5. CAG1 Kwinana cash prices and No 1 and No 2 Pool returns for Sept 2021 to Sept 2022

Graph 6. BFED1 Kwinana cash prices and No 1 and No 2 Pool returns for Sept 2021 to Sept 2022

These graphs all clearly illustrate that both the No 1 and No 2 Harvest Pools far exceeded cash prices achievable for much of the 18 month pricing window. The only time a grower would have been able to outperform either of the pools was if they held grain through to May/June post harvest and sold then. This was during the height of the Russian invasion of Ukraine when international wheat futures exceeded $A650 per tonne.

Note: Pool returns use estimates provided by CBH in August of each year with the exception of 2021 which uses the final pool return.

2022 Flexi Starter & Harvest Pools

Although it is a little bit too early to make a final judgement, the decision to use the CBH Flexi Starter Pool in early June for the 2022/23 crop is looking to have paid dividends for growers. Planfarm Marketing strongly encouraged clients to utilise this pool for much the same reasons as the 2021 Harvest Pools. However, it did have a couple more advantages than the ones mentioned above, such as:

• The pool had a very aggressive sales mandate where up to 50% could be hedged/sold immediately.
• Tonnages could be altered by 30% in either direction in September, allowing growers to alter tonnes based on how the season was playing out.
• Growers holding swaps needed an exit strategy that provided a better result than taking the cash basis.

Despite the very high cash prices many growers were reluctant to sell grain for a number of reasons:

• Dry June/July – Yes it’s hard to remember but most of the state was looking below average in June.
• We hadn’t entered the frost/heat stress window.
• International grain markets were incredibly volatile, all be it at above $A600 levels for Chicago wheat.
• Cash prices were a long way below international prices (low basis and high trading margins).

For these reasons, the Flexi Starter Pool uptake was very strong across our client base, especially for wheat and barley.

For growers holding swaps we recommended the strategy of unwinding swaps in line with the Pools mandated sales. This strategy has played out well, as the average swap buy back prices are below the estimated Pool returns which means we have been able generate a positive basis on top of the swap entry levels. A significant improvement to exiting swaps mid year and selling for cash at extremely negative basis.

For canola, we were less inclined to use the Flexi Starter Pool due to the extremely high price and relatively better basis compared to wheat.

If you would like to see how other commodities and grades compared in the pool, please let us know.

Graph 7. ASW1 Kwinana cash price (blue line) compared to the CBH Flexi Starter Pool (light green line) and Harvest Pool (dark green line) for Jan 2022 to Jan 2023 period.

Graph 8. BFED1 Kwinana cash price (blue line) compared to the CBH Flexi Starter Pool (light green line) and Harvest Pool (dark green line) for Jan 2022 to Jan 2023 period.