Grain growers considering whether to sell or store grain at harvest should be weighing up the benefits of cash now against the likelihood of getting higher prices early next year.
National Australia Bank (NAB) Head of Agribusiness – Business Markets, Greg Noonan, says it’s essential for anyone deciding to hold grain to have a strategy for both upside and downside risk.
“There are benefits of selling at harvest, including immediate cashflow to pay down overdrafts and contractors,” Mr Noonan said.
“Storage does come with costs, potentially including interest on finance, and you’re betting on prices increasing enough to come out in front.”
Mr Noonan believes the best marketing opportunities for the current crop are possibly behind us, and it’s unlikely prices will reach levels they were in May and June. However, there is potential for some price spikes over coming months.
“The United States is looking dry on the plains, where most of the high quality grain is grown, and speculators in US futures markets have a close to record short position, which has the potential to create some volatility and short covering rallies.
“Domestically, there could be demand for feed grain early next year if the predicted El Nino results in poor summer crops in northern New South Wales and Queensland.”
The most important thing, according to Mr Noonan, is to have robust discussions with both bank managers and grain marketing consultants to make sure you have thought through all the implications.
“To hold grain, you need a strategy that sets realistic target levels and clear actions that you will take if prices do reach your target. You also need a contingency plan for if they don’t.
“And it’s important to keep an eye on new crop prices, because the factors that may cause an increase in prices for your current crop may also influence futures markets.
“Also talk to your marketing consultant about options strategies in lieu of deferred physical sales, as there are ways to limit your price downside whilst allowing you to participate in potential upside.”
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Important Note: Any advice in this editorial has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.
About NAB Agribusiness
National Australia Bank (NAB) Agribusiness is Australia’s leading Agribusiness Bank and has been supporting Australian farmers for more than 155 years. NAB employs more than 550 agribusiness banking specialists in 110 metropolitan and regional locations Australia-wide. With their local and industry knowledge, our Agribusiness team understand the unique financial and environmental needs of farmers and businesses beyond the farm gate – whether they provide inputs into agriculture or process, distribute or market primary produce. NAB also has a specialist Agribusiness Asia Desk to help Australian farmers make the most of the rapid growth in demand for high quality produce in Asia. We deliver a flexible range of agribusiness products and services by listening to and working with our customers, to tailor the best packages and advice for their businesses. For further information please visit www.nab.com.au/agribusiness.