Pros and cons of grain storage versus sales

Share

Share

Grain growers seeing weaker than expected global prices this harvest are being urged to work through the pros and cons of marketing options when deciding whether to sell now or hold on to their grain.

Greg Noonan, National Australia Bank’s Head of Agribusiness Markets, says while global prices are currently weaker than we’ve seen in recent seasons, Australian growers are in fact being paid a hefty premium on global prices.

“Current east coast wheat basis is at levels normally associated with severe drought conditions, due to a shortage of grain being offered for sale by producers,” Mr Noonan said.

2014/15 season milling grade wheat delivered to east coast ports is currently trading at about AUD 75 per tonne above the equivalent Chicago Soft Red Wheat futures price.

Mr Noonan said it’s also important to do the calculations and factor in the opportunity cost of holding and storing grain.

“Waiting for higher prices may be tempting at this time, but you are counting on some change in the market down the track and on-farm storage can be false economy under some circumstances.

“It’s important to recognise all of the costs associated with storing grain, and acknowledge how much of an increase in price is required to cover those costs.

“In contrast, the money in your hand after harvest can be a valuable asset. You can pay down debt that you would otherwise have to carry until the stored grain is sold later in the year.

“Even with interest rates at historically low levels, an increase of about AUD 10 per tonne in price would be required to cover just the financing costs associated with holding grain for six months.”

Mr Noonan says there are few indications that the current grain price is likely to shift in the near term.

“From a global grain price perspective, we’re now waiting for northern hemisphere fundamentals to begin impacting prices in their spring next year.

“A continued fall in the AUD may provide some support to local grain prices, as long as it is not offset by a fall in global wheat prices caused by a strengthening USD.

“The global market is very well supplied, so other than a further deterioration in local climatic conditions over our summer there is no major factor on the horizon that is likely to lead to a significant price rise for Australian growers,” Mr Noonan said.

Producers looking to benefit from an increase in prices post-harvest should also consider marketing alternatives such as pools, which provide cashflow at harvest and some participation in the post-harvest market.

Your local NAB agribusiness manager can provide some details and put you in touch with a grain marketing specialist.

Topics

SEE ALL TOPICS

Related Articles

  • Climate

NAB backs new renewable wind farm in Far North Queensland

NAB today announced it is the only Australian bank providing project finance for global renewable energy power producer Neoen to build a $370 million wind energy hub in Far North Queensland.

  • 20.09.2021
  • Time to read 2 min read
  • Community

BBQs at the ready for Western Australia’s first AFL Grand Final

Australia’s favourite past time of firing up the BBQ will be in overdrive this weekend with Western Australians expected to spend big and celebrate hard.

  • 20.09.2021
  • Time to read 3 min read
  • Economy

NAB CEO Opening Statement to the House of Representatives Standing Committee on Economics

Current forecasts show 80 per cent of eligible Australians will have had their first jab within three weeks, and their second jab by mid-November. This is our light at the end of the tunnel.

  • 08.09.2021
  • Time to read 4 min read

Quick links

National Australia Bank — NAB

Sometimes When The Unexpected Happens, We Realise What We Truly Value. Whether A Home, Farm, Business Or Your Passion, NAB Is Here To Support You.

Business Research and Insights

For more business news and analysis, visit NAB’s Business Research and Insights.