Key points
- Know the specifications of the grain to be sold
- Develop a marketing plan ahead of time
- Keep two to three marketers informed during the season
- Sell only to known and reputable grain buyers
Grain marketing specialist Josh Gordon told a recent GRDC Farm Business Update that one of the first steps to minimising market risk was knowing the specifications of the grain earmarked for sale.
His comments were made during an online discussion called ‘Managing your exposure to grain markets and counterparty risk’ delivered to New South Wales growers with the aim of building knowledge to support effective decision-making in the farm office.
NSW Department of Primary Industry international engagement manager Josh Gordon. Photo: Nicole Baxter
As a former grain buyer, Mr Gordon, who now works at the NSW Department of Primary Industries in international engagement, said knowing the attributes of grain to be sold goes a long way to removing much of the risk when it comes time to sell.
“It surprises me how often grain comes to market and the grower isn’t fully across exactly what they have and where it is stored on farm,” he said. “Knowing what you have and where it is stored is vital.”
Be prepared
Mr Gordon also highlighted the need for all individuals working in the business to develop a marketing plan well ahead of when the grain is sold, so the person responsible for selling the grain knows when to “pull the trigger”.
“Quite often a grain marketer will send a text or ring a grower to offer a price for a certain tonnage of grain and the grower has to discuss the offer with others before making a decision,” he said. “Sadly, they have the conversations and decide to accept the offer but, in the meantime, the price offered has evaporated.”
The market is volatile and can change rapidly, so decisions that can be made ahead of time about the ‘trigger price’ and when grain is available to sell will enable action to be taken at short notice.
Mr Gordon encouraged growers to develop a written marketing plan. The plan would be a central place for recording what prices are needed for all classes and types of grain grown and stored on-farm.
When to sell
Mr Gordon said the best time to sell grain is when individuals within the business are comfortable to sell: “If you’re a month from harvest and the crops are looking fantastic, you might go to market with a certain quantity of grain,” he said. “But you have to be able to sleep at night.”
In some years, forward selling is a good option, but some growers do not use it because they are not comfortable with the risk.
Be informed
Mr Gordon suggested that having conversations with two to three grain marketers before sowing may help when making decisions about what to plant.
“Ask them about the fundamental factors impacting price,” he said. “If something changes radically akin to what happened with barley tariffs in China, find out if there are options for new markets.”
Mr Gordon said it was also important to keep grain marketers “up to speed” with how your production is going during the season.
“They can’t help you achieve your target price for your grain if they don’t know what you’re growing or your potential yield,” he said.
“Keeping two or three grain marketers informed of what you potentially have to sell will help them come to you with a selling opportunity if it arises.”
Payment risk
When it comes to minimising the risk of payment defaults or delays, Mr Gordon said it was important to carry out thorough background checks.
“Obviously, you want to deal with a grain buyer with an established and positive reputation, one that is a member of Grain Trade Australia and provides contracts that you can read ahead of the sale,” he said.
“If you’re selling a commodity your regular marketer doesn’t buy, ask them what they have heard about the alternative buyer and whether they know of any situations that were difficult or challenging.”
GRDC Research Code ORM1906-002SAX
More information: Josh Gordon, 0419 380 508, josh.gordon@dpi.nsw.gov.au
Watch the recording of Josh Gordon’s talk delivered online as part of the 2020 GRDC Farm Business Updates. All the topics delivered as part of the series are listed below.