JUNE 2017

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Grain News: Grain Marketing Newsletter

Welcome to the June edition of Grain News. We hope that you find the content of benefit, and if you feel inclined please forward on to your neighbor or someone who may value what we provide. Your feedback is always welcome for future article ideas.

Brendan

Grain Market Update

Things are starting to feel a bit shaky in the world of grain markets, with weather concerns and production at the forefront.

We are now into June and the ten-day rainfall forecast for South Australia and Western Australia is showing ten fifths of not much. This is a concern, as there are still plenty of producers who are yet to plant a seed. Those who have sown their programs dry, or into marginal moisture, are also facing challenges of mice and staggered germination. 


Weather Concerns Not Only in Australia

The weather woes are not only limited to us here in Australia. We are hearing more reports about the dry conditions through parts of Northern US. The areas of concern are in the spring wheat producing states of North Dakota, South Dakota and Montana. Conditions have remained dry for the past two weeks and, as illustrated in our chart of the week, subsoil moisture is limited.


Hedge Funds a Key to the Direction of this Market

At present, hedge funds are holding a record short position in the wheat market. Being short means that they profit if the market moves lower. The story around weather and crop ratings will determine how much intestinal fortitude these traders have.


Are Farmers Really in the Business of Grain Marketing?

All too often grain growers talk about the hassles of marketing their grain, but is this really true? In our view most farmers are actually in the business of selling grain, not marketing grain. Marketing is associated with branding, value chains and value adding but at this current time most grain producers are simply selling their grain as a bulk commodity.

For grain commodity producers their greatest competitive advantage is producing volume, with the lowest possible cost structure. As a result, when a grain grower comes to sell their grain it is most likely to achieve a profit, based on their cost structure, and not the price that is achieved. As a seller of a commodity there is very little that can be done to affect the price. On some occasions a grain grower might be lucky and pick the top of the market. However 9 times out of 10 it is near impossible to pick any market.


Low Prices, Cost Price Squeeze - Reduce Cost of Production!

With low prices a very real prospect this year, there is considerable pressure on business cost of production. Despite the low prices, input costs (particularly fertiliser) are tipped to increase due to larger crops putting demand pressure on global supply, which is now starting to work through to the retail price. In this environment, businesses have to optimise their systems, wherever possible, and concentrate on reducing their cost of production to increase profit margins. Part of this process is being disciplined towards variable costs (particularly fertiliser and chemical). The top 20% of businesses in South Australia can maintain profitability in decile 2 prices or lower, irrespective of location in a range of seasons. The average business needs closer to decile 5 pricing. The top 20% and average have very similar resource bases and are not necessarily bigger, as there is limited correlation between scale and performance. This means many farms have abundant internal capacity to create greater profitability and reduce their cost bases.


Market Directions, Prices Direct and Premium Package Additions

At Rural Directions adding value for our clients is a high priority. One way this is achieved is through continuous improvement of our products and services.

Recent examples are additions to our Market Directions, Prices Direct and Market Directions and/or Prices Direct Premium Services. Best of all, there is no additional cost involved for you.


Rural Directions Publications

Rural Directions produces a number of publications that are relevant to today’s farm managers. This includes the Decile Report which was been updated in early 2017.  

Decile report
  • Do you sell grain for your farming business?
  • Are you frustrated by current grain prices on offer?
  • Do you need a resource to help keep prices on offer in perspective? 

Other Rural Directions Publications

  • 2016 Farm Salary Survey Report
  • SnapShot Combined Report 2015/16

Disclaimer

© Rural Directions Pty Ltd 2017 Australian Financial Services Licence Number 221556
Disclaimer: Whilst every care is taken to compile this newsletter Rural Directions Pty Ltd, its officers and representatives advise that they shall not be liable in any way what so ever for any loss or damage suffered by any person as a result of reliance of whether such loss or damage arises from the negligence or misrepresentation or any other omission of the publisher.


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