Power of knowledge
For two years now, Aussie grain prices have been trading at a significant discount when compared with global prices.
Yes, prices are high and most farmers have enjoyed two good seasons.
But it feels like we’ve left something on the table; at the farm level we haven’t been able to fully land the price-volume quinella.
This isn’t just an issue for farmers, it’s an issue for the regional economy.
Getting good data on this is difficult, but for the purpose of the conversation let’s say 30 million tonnes of wheat, barley and canola has been sold by farmers at $50 a tonne below global parity. That’s a $1.5-billion lost opportunity.
Maximising the value of the Aussie crop is important, for everyone.
There’s plenty of conjecture as to why our prices are lower than they should be.
Is difficulty in accessing shipping capacity and port availability limiting competition? Is the main profit driver for major traders volume not price?
If so, they’re incentivised to work prices lower.
Is there an oligopoly in the grain commodity trade here, which impacts the relationship between global prices and local bids?
As I ponder these issues, I’ve realised it’s pretty easy to sit back and complain about something, blame someone else for a situation we don’t like. So, it’s worth reminding ourselves as farmers, we have first point of control in the supply chain.
A trader can’t fill an order until we sell them some grain. If we don’t like a grain price then why do we sell?
Part of the answer to this is the need for cashflow.
Cropping is an expensive business. We invest heavily throughout the growing season and by December we’re looking for a return.
Being forced to sell for cashflow limits the ability to capture an improved return post harvest, and any extra dollars on the grain price goes straight to profit.
A 10 percent lift in the price might mean a 50 percent lift in profit.
Decoupling the marketing decision from the cashflow need would be a useful step.
Pleasingly, we’re starting to see some inventory finance products appear where farmers can get a cash advance against their stored grain. But more work needs to be done between industry and financiers to make this option more readily available.
The piece that stands out the most for me though is the knowledge gap.
Farmers know their production system very well.
They seek advice from plant breeders, agronomists, nutritionists, soil scientists and research groups to inform their decisions. They monitor every step of the production cycle.
But it seems we understand very little about the next phase of the product journey, the steps from farm to customer.
When we see a USD price for grain sold to a customer in the Middle East or South East Asia, most of us can’t readily convert that back to a farm gate value. We don’t know if the local bids are a true reflection of destination price. We don’t know if our post farm gate supply chain is functioning effectively.
So, I think, as we work up the 2023 budget we’ll put an extra line in for ‘Knowledge – Markets’. It does feel like this is the next area for uplift in farm business performance.
This approach will only be effective if it’s industry wide. If we collectively lift our understanding of each component of the journey from farm to customer, we will be able to make better marketing decisions.
As someone once sang, ‘You’ve got to know when to hold ’em’.