As a grain grower, how do I sell my grains?
Whilst selling grains, equates to profits for farmers, many farmers find it much easier to focus on the production of their grain crops rather than selling. There are multiple ways in which grain growers can sell their grain, which include selling before harvest, at harvest and after harvest,
Methods in which grain growers can sell grain in today’s grain market include;
- Forward selling – selling through futures contracts of commodity swaps.
- At harvest – through cash transactions and grain pools
- After Harvest – through on farm storage systems and also within the industry harvest silo system.
The right method for selling grain, will be specific to each individual farmer and is generally based upon their farming operational needs, and their cash flow requirements.
As grain prices fluctuate widely throughout the year, depending upon principles of supply and demand, the fact that growers in todays market have multiple opportunities to sell over a 2–3-year period, through futures contracts and forward selling prior to harvest, to selling grain well after harvesting due to improved storage solutions, enables growers to take advantages of rices when they are high, and hold off from selling when prices are not at a premium level.
Grainwise provides comprehensive assistance to grain growers, assisting in every step of selling and marketing grain crops. With decades of industry experience, our team have extensive market knowledge, and can assist with everything from crop selection, contract negotiation, right through to contract execution.
What is the cost of grain marketing for growers?
The cost of grain marketing is specific to each farmer, with each farmer having differing needs in terms of sales strategy to ensure the longevity of their farming operations. Engaging with a grain brokerage company such as Grainwise, enables farmers to make best use of their time by allowing experienced professionals to develop a sound marketing strategy that will improve the farms profitability.
Whist grain marketing may seem like an added cost to grain growers, developing a successful grain marketing strategy can also ensure the longevity of your farming enterprise, with the benefits of engaging with experienced grain marketing professionals, heavily outweighing the costs. Some of the cost benefits related to engaging grain marketing brokers include;
- The ability for farmers to focus their time on production and farm operations, leaving contract negotiation and grain marketing strategies to experts
- Access to a larger pool of grain growers, which increases the ability to secure forward contracts with premium terms;
- Greater range of prices available due to the increased access to a wider scope of grain buyers
- The best farmgate returns possible.
Grainwise is a transactional based brokerage company, and we work extremely hard to negotiate favourable terms that are suited to your business, including suitable grain marketing costing based on your operational budget and cash flow needs.
How to read and compare grain prices?
Reading and understanding grain prices, is certainly not always easy, even for experienced farmers and grain brokers. Grain pricing is based upon the below formula;
Cash price = futures + basis +/- premiums and discounts.
In order to adequately understand the above pricing formula, it is important to understand each element of the equation, the futures, basis, as well as what premiums and discounts apply.
Futures relates to the fluctuating grain price, with the level constantly changing throughout any given day. The basis component of the cash price relates to the supply and demand of the grain product. Basis levels are applicable to each individual market or terminal and will vary greatly. Basis levels can also be both positive and negative figures.
The premiums and discounts component of the cash price will be specific to each buyer, and the terms in which the buyer commits to with the seller. Premiums and discounts often depend on variables such as market conditions, the grade or quality of the grain supplied, and what the buyer is looking for to meet their own contractual needs.
Taking into account each of the components of the cash price, will enable grain growers to adequately read the market, and provide an insight into when the best times and conditions for selling product occur.
How does the grain grower receive payment?
Grain growers receive payment after delivery of the grain has occurred, electronically, with payment terms and dates forming part of the sales contract between grain buyers and sellers. Payment terms form an essential pert of contract negotiation with favourable payment terms essential to a growers cash flow needs.
Due to increased use of technology, many grain growers prefer to be paid as soon as possible, which can be as little as 48 hours from delivery, with this fast turnaround time considered the gold standard payment terms within the industry. Many buyers in the market have moved from what was previously standard payment terms of 30 days, to the shorter payment terms.
Having shorter payment terms not only benefits growers in terms of positive cash flow, but it also ensures that growers are able to mitigate their level of risk, particularly in circumstances where they are dealing with a new buyer.
Whilst shorter payment terms have become the preferred option for many farmers, some farmers do still prefer longer payment terms, with this occurring more commonly where the grower is dealing with a reputable buyer.
What happens if there is a delayed payment from the grain buyer?
Delayed payments from buyers are certainly not favourable for growers, and can cause cash flow issues, as well as creating an element of distrust between the buyer and grower, effecting the commercial relationship. All grain contracts should have adequate default procedures and dispute resolution clauses, which enable a grower to take suitable and relevant action in the event that a payment is delayed by a buyer.
Contractual terms related to delayed payments commonly include options for the grower to take further action, which include, receiving both interest payments on the balance of payment that remains outstanding, in addition to compensation payments.
Another avenue in which growers can protect themselves from a legal standpoint in circumstances where a buyer has breached a contract due to non-payment or delayed payment, is to ensure the title to the grain only passes to the buyer on payment. A clause of this nature within a sales contract, will enable the grower to register a security interest in the grain with the Personal Properties Securities Register (PPSR). In circumstances where grain has been delivered but payment not received, a seller will be deemed to have created a Purchase Money Security Interest (PMSI) in the grain.
Issues with delayed payments is yet another reason for growers to engage the serviced of an experienced broker, such as Grainwise, who can ensure all contractual terms are solid, and enable the grower effective recourse when a breach of contract occurs.
What is the minimum amount of grain I can buy?
The minimum amount of grain that can be brought depends on the market in which the grower is selling the grain. Purchases made from the farm gate for example will have no specific minimum quantity, however, purchases on the ASX have a 20 metric tonne minimum quantity.
What is the minimum amount of grain that I can sell?
Again, the amount of grain that a grower can sell, has no real minimum in terms of farmgate sales, however growers will want to ensure that they are receiving the best price for their products, and will need to pay careful attention to the market and in particular the cash price. Selling on the ASX has a minimum quantity of 20 metric tonnes.
What grain insurance is available?
In Australia, due to the uncertain weather conditions, crop insurance in relatively common, with crop insurance purchased by a variety of agricultural producers, with the aim of protecting against the loss of their crops as a result of natural disasters, such as adverse weather conditions, and also loss of revenue due to declines in the commodities markets.
Agricultural insurance, or crop insurance is an essential part of the risk management process for many farmers, with policies generally very distinctive in relation to terms, only covering certain events and certain varieties of crops.
Grain growers need to weigh up several things when considering purchasing grain insurance as part of their risk management strategy, with the main consideration being whether the policies are relevant, covering the circumstances related to the area in which the crop in grown, and also whether it is a cost-effective option for the farmer. Seeking the assistance of a grain broker, such as the Grainwise team, can ensure that you are provided with access to the most suitable, relevant, and cost-effective insurance policies on the market.
What happens when a buyer does not honour the contract?
If a buyer does not honour a purchase contract, the grower will need to seek legal assistance and professional advice in relation to options that may be available to the grower for a breach of contract. As discussed above, these include compensation payments, with the specific remedies and action available to the grower dependant upon the terms and conditions specified within the original sales contract.
Once a grower has been advised that the buyer in no longer honouring the contract, the grower will need to consider what options are available in terms of selling the grain, which can include finding a new buyer, or looking at storage options depending upon the market conditions at the time.
What happens when a seller does not honour the contract?
There are many reasons in which a grain grower in unable to honour a contract, which can include decreased yields, adverse weather conditions as well as many other scenarios. In the instance where a seller cannot honour a contract it is important for the seller to consider the reasons behind the lack of ability to fulfil, and whether or not cancellation fees will apply to this transaction, which could have devastating effects on cash flow.
Other options that growers could explore in the even that they are struggling to fulfil a contract is to look at local options to assist with fulfillment, which could save the substantial costs associated with cancellation fees and may mean the contract can be fulfilled after all.
At Grainwise part of our grain marketing program includes assisting growers with contract fulfillment and resolving any issues that may arise, including lack of ability to complete or honour a contract.