Unsurprisingly, many farmers find it much easier to focus on the production of their grain crops rather than selling, yet it is in the selling that you must make the most of your hard work. There are multiple ways in which grain growers can sell their grain, including selling before harvest, at harvest, and after harvest.
Methods by which grain growers can sell grain in today’s grain market include:
The right method for selling grain will be specific to each farmer and is generally based on their farming operational needs and their cash flow requirements.
Grain prices fluctuate widely throughout the year, depending upon the basic principles of supply and demand. In today’s market, growers have multiple opportunities to sell over a 2–3-year period. This can be through futures contracts and forward selling before harvest, or you can sell grain well after harvesting due to improved storage solutions. These options can enable growers to take advantage of prices when they are high and hold off from selling when prices are not at a premium level. However, cash flow is also a consideration for most growers, so cash flow can also influence the timing of sales.
We provide comprehensive assistance to grain growers and can assist at 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, and contract negotiation, right through to contract execution.
The cost of grain marketing is specific to each farmer, with each farmer having differing needs in terms of their sales strategy and the longer-term plans they have for their farming operations. Engaging with a grain brokerage company such as Grainwise, enables farmers to make the best use of their time by allowing experienced professionals to develop a sound marketing strategy that will maximise each farm’s profitability.
To some, grain marketing may seem like an added cost to grain growers. However, developing a successful grain marketing strategy can ensure the sustainable profitability of your farming enterprise, and using the expertise of grain marketing professionals heavily outweighs the costs. Some of the cost benefits related to engaging a grain marketing broker include:
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.
Reading and understanding grain prices, is certainly not always easy, even for experienced farmers and grain brokers. Grain pricing is based on the following formula:
Cash price = futures + basis +/- premiums and discounts
To clearly understand the above pricing formula, it is important to understand each element of the equation, the futures, the basis, as well as what premiums and discounts apply.
Futures relate 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 apply to each market or terminal and will vary greatly. Basis levels can 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 account of all components of the cash price allows grain growers to adequately read the market, and provide an insight into the best times and conditions for selling that are likely to occur.
We are always happy to discuss prices and trends with growers.
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 part of contract negotiation with favourable payment terms essential to a grower’s cash flow needs.
Due to the 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 currently 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 shorter payment terms.
Having shorter payment terms not only benefits growers in terms of positive cash flow, but also ensures that growers can 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 when the grower is dealing with a reputable buyer.
Delayed payments from buyers are certainly not favourable for growers and can cause cash flow issues, as well as create an element of distrust between the grower and the buyer, affecting the future of a 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, and can also include triggers for compensation payments to be made.
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 upon 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 the grain has been delivered but payment has not been received, a seller will be deemed to have created a Purchase Money Security Interest (PMSI) in the grain.
Issues with delayed payments are yet another reason for growers to engage the service of an experienced broker who can ensure all contractual terms are solid, and enable the grower effective recourse if a breach of contract occurs.
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.
As with the previous question, 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 the cash price in particular. Selling on the ASX has a minimum quantity of 20 metric tonnes.
In Australia, due to the complex and uncertain weather conditions, crop insurance is relatively common. Crop insurance is purchased by a variety of agricultural producers, to protect 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 specific regarding terms, and typically only covering certain events and certain crop varieties.
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 is grown, and also whether it is a cost-effective option for the farmer. Seeking the assistance of a grain broker can ensure that you are provided with access to the most suitable, relevant, and cost-effective insurance policies on the market at any given time.
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 dependent upon the terms and conditions specified within the original sales contract.
Once a grower has been advised that the buyer is 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.
There are many reasons for a grain grower to be unable to honour a contract. They include decreased yields, adverse weather conditions, pests, and disease, as well as other scenarios. In the instance where a seller cannot honour a contract, the seller needs to consider the reasons behind their inability to fulfil the contract, and whether or not cancellation fees will apply to a given transaction. In certain circumstances being unable to honour a contract can have a devastating effect on cash flow.
Other options that growers could explore in the event that they are struggling to fulfil a contract is to look at local options to assist with fulfilment, which could save the substantial costs associated with cancellation fees and may mean the contract can be fulfilled after all, even if not as originally intended.
A sound grain marketing program will include assisting growers with contract fulfilment and resolving any issues that may arise, including lack of ability to complete or honour a contract.
If you have further questions or want to know more about selling or buying grain please get in contact with us.