Written on 9th December 2024
Here we are in December, at the business end of the grain marketing season. Blood, sweat, tears and a lot of money have been poured into growing the crop. The season has swung from very dry at the start to very wet (for many) in winter, back to very dry again in Spring and now very wet (for many) at harvest. But despite all of these swings and roundabouts, the state is on track to produce approximately 19 MMT, albeit of less-than-ideal quality in many areas. Now, we need to market this big crop.
Below are a number of considerations for growers when managing contracts and making further grain sales. If you feel overwhelmed at this time of year, would like a second opinion, or would like someone to alleviate the burden, please get in touch with one of our team of grain marketers. https://planfarm.com.au/our-team/
Strategy for marketing grain in the harvest and post-harvest period
First things first, know who you are. When determining a marketing strategy, it is essential to know what you are comfortable doing and with what proportion of your grain. Are you a comfortable carrier of grain, or do
you prefer to have the cash in the bank? Do you want to manage your own sales, or do you want to share that responsibility with a third party, such as an independent grain marketer or Pool manager?
There is no point saying you are willing to carry grain well into next year only to get to the end of January, lose your nerve or run low on cash, and hit the sell button on a $5 bounce. If you are prepared to carry grain, ensure you and your business are in a position to carry through the troughs and well into next year; otherwise, consider selling a large portion now. Checking with your business partners to gauge their willingness to cash in or carry out is also important.
Secondly, prices right now are good. Some prices are very good. Almost every grain is sitting above decile six prices, and some grains, such as lupins and oats, are near record highs. There are worse things you could do than liquidate tonnes at current prices. Sometimes, it is easier to work backwards from what you are prepared to carry and for how long to determine what you need to sell now.
Over the next 3 weeks, the vast majority of the state’s grain growers will finish harvest, and then look to sell a large portion of their crop for cash. This means a lot of grain will hit the market in the next few weeks, and traders won’t want to buy it all, or if they do, it will be at “their” price. Many traders will also want to lay low from Christmas through mid-January. This will inevitably lead to some price slumps. Being a forced or panicked seller at this time is not ideal.
Lastly, there is no wrong or right strategy. What works one year may not work the next. Make sure you do your research, make informed, unemotional decisions, and try not to waiver too much from your long-term strategy.
Optimising and Filling contracts
If anyone goes into Quality Optimiser and hits auto optimise without adjusting prices, then they will probably not get the optimal result. Optimiser will optimise to the parameters it is provided with, and price is a key component. Junk in, junk out is a common saying when doing data analysis. Make sure you know how to use this very powerful, and if you are unsure, then give us a call.
When filling contracts, it is really important to truly understand how to maximise the value of grain according to the quality delivered, spreads in contracts and spreads in the cash market. When filling wheat, barley, and oats contracts, it is all about the grade spreads and not the base price. Putting your highest quality of grain on the highest-priced contract and working your way down is very unlikely to give you the best result. However, this is almost exactly what you do for Canola as this maximises premiums (minimises discounts) for oil and admix. For really low-quality Canola, it is worth considering selling these loads on a flat-priced contract (no premiums or discounts).
Before optimising and filling contracts, it is important to consider what grain you want to have left over at the end, or alternatively, don’t want to have left over. For example, a lot of low-quality grain is being delivered in the northern half of the state, so prices of low quality wheat will likely come under pressure. It may be beneficial to put some of these grades on contracts, but that will also depend on grade spreads. For example, ASW9, AWW1 and AWW2 may best be on existing multigrade contracts, but FED1 and AUW1 may be best sold for cash.
There are also different contract types out there to consider. Bunge and Viterra will do site-based contracts in the Bunbury catchment area. Some domestic buyers, such as Weston Milling (Mauri), will also do
site-based contracts for milling quality wheat near Northam. There are also contracts for flat-priced Canola. Buyers may even negotiate on spreads for existing contracts if they really want a certain grade or want to avoid a certain grade being delivered against their contracts. These are just a few examples of what we do on behalf of our clients that many growers don’t know can be done.
Over the coming weeks, buyers will start seeing their multi-grade contracts filled, with many contracts receiving lower quality grades due to favourable grade spreads for the grower. This will reduce the buyers’ appetite for the lower quality grades and increase their appetite for higher quality grades in the short term, especially if the buyer has some higher quality shipments to execute. In the longer term (4 months plus), exporters will sell shipments according to what they received on their contracts and what they believe they can accumulate in the cash market. This is when we expect to see a rebound in the prices of lower-quality grains. If carrying these qualities, be sure you can get through the lull and also know there are no guarantees of a rebound.
The cost of carrying grain is always an important consideration. Assuming you are running an overdraft at 7% interest then interest costs on carried grain is approximately $2.20/tn/month for wheat at $375/tn and 4.50/tn/month for Canola at $750. CBH warehousing starting getting charged in August 2025 with the first month incurring a fee of $2.25/tn/month.
Market Intel
Having some visibility and understanding of international prices is very helpful. Futures markets show us where international prices are tracking. For wheat, CBOT futures are actually very low at around 555 cents per
bushel. It is the low currency and high basis that is keeping WA cash prices strong. For example, APW1 is currently valued at around $80 above CBOT in the Geraldton and Kwinana port zones (see graph below). This is about the highest basis for the year and a basis we would normally expect to see in a drought year. Although there is a lot of low-quality wheat around, there is also sufficient high-quality wheat to meet export requirements in the short term. Given this, it is hard to see the basis for high-quality wheat remaining this high. The canola basis is also very good relative to the two future markets, Matif and ICE (Winnipeg). Once Canola shipments are full, buyers can lose interest in accumulating Canola very quickly. It is helpful to sell Canola when there are a number of buyers fighting for it.
This leads to another way to see the competitiveness of WA grain on the international markets, and that is CBH port slots (publicly available here https://www.cbh.com.au/exports-and-shipping/portcapacity ).
If spare capacity starts appearing, buyers will have pushed back or surrendered their shipping slots at a cost of about $7/tn. This is an indicator that exporters can’t make a profit executing shipments, so they would
rather surrender slots at a known loss than execute shipments at an unknown loss. In other words, local prices are too high relative to international markets.
Quality and grade reports on LoadNet are also very useful. This information is available to those with LoadNet access here https://secure.cbh.com.au/loadnet/#handbookandform/downloads. These reports provide information on the tonnes of each grade delivered into CBH and also the quality of each grade on a zone-by-zone basis. For example, we can see that ANW2 averages 9.8% protein and 5.1% screenings, which is more or less ANW1 quality. We therefore expect the discount for ANW2 to ANW1 to improve. We can also see that AUW1 has really good protein, and it can’t be optimised, so we should put a higher value on that grade.
Likewise, what is the quality of some of the lower grades, such as AWW2? The State’s Tonnes Report shows that 27% of wheat deliveries in the Geraldton zone are AWW2. However, is this because of high screenings or low Falling Numbers? Our records show that roughly 1/3 of deliveries are due to Falling Numbers falling below the 300 level. It is worth noting that although the current limit for Falling Numbers for AWW2 is 200, under the former grade of AGP1 it was 250. Therefore, buyers have effectively been swapped to a lower quality. Planfarm Marketing records show that over 20% of AWW2 deliveries have Falling Numbers between 200 and 250. These loads would have normally fallen out of AGP1 into FED1, but this year, they have scraped into AWW2. Some buyers will be nervous about the quality of the AWW2 stack, given
that most milling-grade shipments need an average of 280 or above to meet export specs. And any grower who has tried to blend out falling numbers knows it is not an exact science.
Esperance on the other hand has an abundance of high quality, high protein wheat so we may need to prioritise selling these grades while the strong premiums are still there.
In regard to cash prices, it is important to remember that public cash prices are indicative only. This means there is room to negotiate with buyers, especially if prompt transfer is an option. On the flip side, buyers
can drop prices and pull bids at any time. Knowing which grades to negotiate hard on and which grades to hit the bid on is a big part of what we do. Alternatively, growers can put their grain on trading platforms such as Clear and Market Place, where multiple buyers can view and buy their grain. Just remember to remove offers once grain is sold. If there is a big overnight rally it can also pay to jump on and remove or increase offers before the platforms start trading for the day.
Politics will play a larger than usual part in determining our grain prices over the next 12 months. Trump takes office in January and has already stated he is going to hit China, Mexico and Canada with tariffs. These countries are some of the US’s main grain trading partners, and they may, in turn, return fire with tariffs of their own. The tariff war will impact the flow of grain around the world, including the demand for and price of Australian grain. For example, if China implements a tariff on US corn, then it may fill this void with purchases of Australian feed barley and feed wheat, supporting these grades. China’s expected tariff on Canadian
Canola may also lead to more Australian Canola purchases, particularly GM Canola. However, it will be months for a lot of this titfor-tat to play out.
Managing income
If you need to manage income then be sure to contact your accountant before they take their Christmas holidays and be sure you understand the significance of payment date versus transfer date. Buyers are always willing to defer payment until July but are rarely willing to defer transfer until July. Buyers may also vary what they will do July transfer by grain, grade and port zone. This will align with their shipping slots.
Pools are also seen as a good option for managing income. CBH is the main pool provider but there are others such as Flexi Grain. Pools generally stay open through till the end of December but they can shut at any
time with no notice. So if you are keen to Pool some grain it is always safer to do it sooner rather than later.
Summary
It has been another wild ride in the WA grain industry, but the season isn’t over yet. As you look to wind up harvesting and taking a wellearned rest, be sure to find time to consider how to maximise the value of your grain. The season isn’t over until the cash is in the bank. If considering carrying grain, then make sure you know your emotional and financial capacity to carry grain and for how long. Don’t be a forced or panicked seller when prices inevitably come off in the holiday period. Do some research to determine which grains and grades are best to Pool or carry and which should be cashed in. When selling for cash, utilise the tools available to you, and also, don’t be afraid to negotiate with buyers when dealing directly.
If you would like some help over this period or even just need a second opinion then reach out to one of the Planfarm Marketing team and we will be happy to help.
From the team at Planfarm Marketing, we wish you a safe end to harvest and an enjoyable festive season.
