Dec 2023
Navigating Grain Markets from AWB Basis Pool to Global Strategies
Andrew Tasker
Dec 2023
Navigating Grain Markets from AWB Basis Pool to Global Strategies

Written by: Andrew Tasker | Grain Marketing Advisor | 0408 848 123

 

It’s great to be a part of the Planfarm team, albeit a baptism of fire with a mid-harvest start date! I originally moved to WA to work in the grain industry in 2000 when producers were looking for assistance with a new hedging product called the AWB Basis Pool Contract. The domestic market had been deregulated but in WA had made a relatively small impact due to the proportion of exported grain, however the AWB Basis Pool Contract allowed grower participation in the AWB Pool and apart from basis, allowed increased control over their price.

Export de-regulation followed, giving growers full exposure to the cash market, a plethora of pool products and most notably, price volatility. Other products followed such as cash basis contracts and OTC products appeared (commonly referred to as swaps) which were eventually offered by the major banks and even some merchants. All this change required a swift and steep learning curve for WA growers who, up until then, had spent all their farming careers delivering to a pool. However – WA growers were up for the challenge.

In 2012 I moved to the US to work in markets and there is nothing like working in another part of the world to see your own backyard in a new light. Whilst agriculture in the US is in a lot of ways different, it’s also very much the same.

Generally, farmers are the same all around the world, it’s just the crops and accents that differ. However, there are significant differences in the teachings throughout the US, European, South American Ag  Colleges and Universities where marketing and hedging is a base subject. This translates the language of hedging and marketing to become second nature.

Most farmers commonly use a range of methods to sell and hedge from the all-important cash market. No matter what fancy hedging structures you implement, at the end of the day, you have to physically sell the grain to products offered by the local elevator to trading directly on the board with futures and options as well as swaps like we have here in Australia.

So, are we missing out on anything by not being experienced in these marketing and hedging alternatives? I think yes and no (and before anyone says make up your mind for once), it depends on where you sit in your business with regards to ‘marketing and hedging’. A helpful way to look at this is to consider how you are with other parts of your business. Are you someone that looks for an agronomic approach using
tried and true packages and will change but only after the research results are in? OR are you the one that is looking for the new variety and will chuck in a paddock just to see how it goes, learning on the run?

This can be applied to your grain marketing by looking at post-harvest cash or pool strategies or the use of the forward cash market and swaps and options.

Either way a solid understanding of how the market works will prove beneficial and hold you in good stead towards making decisions while gaining an increased understanding of what’s going on. The market’s only role is to put a price on a commodity or product to equal out supply and demand. This is why we say “there are no cures for high prices like high prices etc” WA’s record low wheat basis over the last two seasons is an excellent example of this.

A good example of a strategy relevant to our current market is the ability to hedge your production with participation in some (or all) of any market upside at a later stage for the cost of a premium. The principal being that the ideal hedging product allows you to set a minimum price with the choice to participate in any moves higher. This means that no matter how low prices go, you still achieve your hedged price but if price rises above your hedged price, you also take advantage of higher pricing. This also has the added benefit if yield is lower than expected, washout costs are minimized.

This raises the question ‘is this strategy suitable for you in your business?’ and there are two parts to answering this question. Firstly, what are the technical aspects of futures, basis and currency together with local and international cash markets (eg. know the market).

Secondly, how can this strategy be tailored to work for your individual business (eg. know yourself).

Market opportunities continue to present – after all, that’s a market! We have the tools to explore these opportunities as they arise tailored to your business if you would like to see how this type of strategy could work for you I would be happy to work though some examples. We are planning on running some online seminars in the new year. If you are interested in participating, then register your interest with
me. Alternatively, if you are in a grower group and would like us to present at your next event then just get in touch.

I’m looking forward to working with our Planfarm grower group complimenting grain marketing strategies with the knowledge I’ve gained through my time in a variety of international grain markets.

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