best practice management guide for south-eastern Australia - Grains ...

Marketing
Figure 16.1 Comparison of the canola price, delivered
Newcastle NSW, at sowing (early May) and harvest (early
December) and the seasonal high 1996–2008
Price $/t (ex Newcastle NSW)
900
800
700
600
500
400
300
200
100
0
410 398 408
313 320
460
need to look at pricing opportunities available well before
sowing and during the growing period of the crop, taking
into account the performance of their own crop, risks of
forward selling and domestic and global marketing factors.
It is necessary to know what is a high and low price so
that you can set realistic target prices for selling. Growers will
not normally sell more than 40–50 per cent before harvest
on a conservative yield basis as disease, frosts, drought
and a host of other factors can destroy crops and cause
shortfalls in meeting contracted tonnage, which can incur
large penalties. A good approach is to aim to sell certain
percentages of the crop at specific times. So, for example,
you could sell 10 per cent pre-sowing, 10 per cent on full
ground cover, 10 per cent at flowering and another 10 per
cent just prior to harvest. The timing of sales will depend on
how the crop is performing as well as price.
From well before sowing it is advisable to monitor the
price of canola closely and on a daily basis when market
prices are rising strongly. It is a good idea to have one or
two sources of independent market advice:
n this will ensure you are sent alerts or are aware when
market action may be appropriate; and
n you will receive regular newsletters with information on
market trends.
You should also organise to receive daily prices from
the main traders and buyers via internet and fax. Inform
whoever is likely to be selling your grain about your cropping
intentions and ask for their field representative or agent to
contact you if there are pricing opportunities.
575
423 415
96 97 98 99 00 01 02 03 04 05 06 07 08
Year
May-sow Dec-harvest Seasonal high
SOURCE: Profarmer
368
475
655
870
Options for
selling grain
Canola is a high-value crop and so should not be stored
on-farm for long after harvest as the holding cost in terms
of interest lost can soon mount up. Also, oilseeds stored for
extended periods must be subjected to carefully controlled
aeration to prevent the possibility of quality deterioration
due to heating and to prevent stored product insect attack.
Canola is usually sold off the header and stored at local
delivery silos or trucked directly to the crushing plant.
One useful option is to warehouse canola at the local silo
as soon after harvest as possible. This eliminates concerns
relating to any storage problems which may arise in the
future, and can provide growers with more flexible marketing
options after the harvest has been completed
The number of ways of forward selling has increased
considerably, a major reason being to reduce the risk to
growers.
A fixed price fixed tonnage contract – the traditional
way of forward selling before harvest – entails some risk if
used when crop outcome is uncertain. If the grower cannot
deliver against the contract the buyer will usually ‘wash the
contract out’ which may involve a penalty to the grower.
The buyer will usually have the right to replace the failed
contract tonnage by buying on the open market and the
price needed to purchase the canola may be well above the
market price bid to growers generally. The buyer may also
give the grower the option to roll the contract over to the
following year, but whether this is desirable largely depends
on the difference between the contracted price and the
market price when the contract is declared non-deliverable.
Other variations of the fixed price, fixed tonnage contract
include target price orders and no price established
contracts where the pricing decision can be made at a date
after contracting or delivery. A number of marketing pools
are also available to growers.
Over the Counter (OTC) products including basis
contracts are now offered by most major traders, however,
grower participation to date has been small. The products
allow the grower to set the futures and exchange rate legs
while leaving the basis leg unfixed. If the crop fails, as long
as the basis is not fixed, the contract is non-deliverable.
While the futures and currency hedges have to be closed
out, any loss or profit is limited to these transactions and
there is no washout penalty. A more recent development
is the introduction of Bank Swaps. A grower hedges the
futures and currency with the bank. It is a cash settled (nondeliverable)
contract so the basis is established when the
grower sells his canola. This contract gives the grower the
choice of when and to whom to sell his canola.
With any market strategy the grower must feel
comfortable with the risks taken. Each grower must develop
their own strategy, but it is important that marketing is given
the same status as other technical decisions.
The aim is to ensure the farming business does not suffer
88 Canola best practice management guide