Know when to hold ‘em

It’s that time of year again – the annual harvest hunger games when farmers and traders face off to see who will blink first.

Will the farmer’s need for cash flow mean they’ll keep selling into a falling market? Will the trader’s need for volume to fill a vessel by a certain date force them to bid up to attract tonnage? 

Surely a psychology degree should be a part of all ag training – or perhaps time in Las Vegas to perfect the art of poker.

Prices can move by 10 to 30 percent in a matter of days. And of course, every bit extra on the price goes straight to profit; no more work, no more cost, just extra revenue. Conversely, every dollar the price drops comes straight off the bottom line. So the stakes are high.

For most of the past 12 months, Aussie wheat and barley has been trading with a strongly negative basis. That is, these grains have been trading well below global prices to the order of $30-$50 a metric ton. And we’ve regularly seen market reports indicating our wheat and barley is the cheapest in the world. 

I don’t like being the cheapest in the world. I don’t think it’s a smart place to be. We used to take pride in our ability to achieve a premium for our grains. 

Our customers liked the quality and they liked the service. It seems we’ve moved from being effective marketers to impatient traders.

Creating value for customers, and therefore enhancing price paid, is not the priority. 

We can’t blame traders for acting in a way that maximises the return to their shareholders – that’s their job. 

But if volume now drives profit for a trader, it’s easy to see how lower prices drive volume.

Is there now a structural disincentive for the people entrusted with the task of delivering our grain to customers, to maximise the value of that grain?   

This is not just an issue for farmers, it’s an issue for the Australian economy. If we’ve traded say, 10 million tonnes of grain at $40 a ton below global prices, that’s a $400-million lost opportunity. That’s $400-million that’s not injected back into rural economies.  

Australian agriculture operates in a high-cost environment with a volatile climate. It is not sustainable to position ourselves at the bottom end of commodity markets.

So it is time for an independent review of grain markets in order to answer one central question. Does the current structure maximise the value of the Australian grain crop?