Working with farmers has taught me a lot about the complexities of what goes into running a successful operation. The process needs to be carefully managed throughout the year to give the best chance of growing a good crop, only to rely on the weather and grain prices to ensure it translates to a financial success.
In the middle of August, Bob and I were given the opportunity to present at the EPIC Grain Industry Expo (View our presentation) at four different locations across the Eyre Peninsula, one of which being Wudinna. For us, our message was simply talking about the advantages of purchasing farm land within superannuation by comparing it to traditional finance methods that most people are familiar with. The other speakers were representing the various different grain marketing firms that farmers can choose to sell to. Each speaker was given 15 minutes on a particular topic of interest, with a panel style Q&A session with all presenters at the end.
Our role in providing financial advice with farming families tends not to include grain marketing. Needless to say, we were quite overwhelmed with the all of the options producers have when it comes to who and how much tonnage to sell to. We have seen first-hand the stress and anxiety it causes with each text message that comes through to notify that a certain company is now offering a different price on the same quality of grain.
“Should we sell at that price? How much should we sell? What do you think?”
By the end of the week, we had heard many presentations on cash products, index selling and everyone’s favourite – pools. It seems like most growers are becoming disillusioned by the promise of pools delivering a certain return, only to be disappointed when this doesn’t eventuate. As the pool managers said themselves – always make sure you know who the managers are (as individuals) and what their mandates say. This way, you can work out whether their strategy fits in with your overall business model. In any case it is no surprise that most growers are avoiding pools and selling to cash.
Our general advice to clients is to know your cost of production per tonne. This way you’ll know what price you need to aim for in order to break even or make a particular profit margin. This is regardless of which method you use to sell your grain. We are seeing more and more farmers becoming savvy in this area and adopting a professional approach to running their businesses.
The outlook we took away from the presentations were that grain prices may soften towards the end of this year, as the world’s supply remains strong for now. But as we all know, you need to get there first!
Written by Daneil Budeika
Published in the Wudinna Granite