Pool exodus may be too far

28 Jan, 2015 01:00 AM
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There are warnings from the finance industry that holding grain does not mean better returns

SINCE the end of the National Pool for wheat, there has been a steady stream of grain moving out of pools and into the cash market.

In its recent report into pools, grain industry analysts Profarmer found the percentage of the Australian crop going into pools may have slipped below 15 per cent, in spite of an ever increasing suite of pool products.

And Profarmer chief executive Nathan Cattle believes the swing out of pools may have gone too far.

“Poor performance by certain pool operators in recent years has seen pools and managed products cop a bad rap and this is reflected in their shrinking market share.

“However, there is definitely a place in the market for the managed grain marketing service offering,” he said.

Alex Campbell, pool manager at Marketcheck, which has performed consistently well in Profarmer’s analysis into the various pool operators, said it was frustrating to see pools run down in commentary due to the actions of a few.

He said he was confident Marketcheck’s offerings, which outperformed other pool operators in their categories this year, stood up against any marketing strategy.

“It is important to benchmark pool products against the cash market as well as against one another,” he said.

“We are pleased that in the pool report Marketcheck not only again outperformed other pool managers, but we also topped market benchmarks such as the harvest market, as well as average post-harvest prices net of interest and carry.”

Mr Cattle said he believed managed offerings had a place in providing marketing options for growers not confident in executing their own selling program.

“These products could provide access to grain marketing expertise which could ultimately achieve some Australian grain growers a better return than had they marketed the grain themselves,” he said.

“In our report we found a number of managed products on offer last season outperformed the average post-harvest cash price.

“Hence we feel these managed products should at least be considered as part of every marketing plan.”

There has been a swing from the production sector out of using pools as a means to participate in the post harvest market, favouring options such as on-farm storage.

However, there are warnings from the finance industry that holding grain does not mean better returns.

“On-farm storage can be false economy sometimes,” warned NAB head of agribusiness markets Greg Noonan last year.

“Waiting for higher prices may be tempting at this time, but you are counting on some change in the market down the track.

“Farmers also need to factor in the cost of carrying grain when making their decisions.”

Mr Cattle said as the industry matured, he hoped growers would move past choosing pools based on their estimated pool returns at harvest, which he described as somewhat of an artificial construction, but rather to understand the pool’s strategy.

“You need to know the pool’s mandate and what products will be right for you.”

For instance, he said pools could be used as one way to access potential price incentives from derivatives for farmers not comfortable using the products themselves.

He said making the right choice was critical.

“Final 2013 pool returns of different managers vary as much as $40 per tonne for the same grade at the same port.”

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FarmOnline
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

James
28/01/2015 8:43:29 AM

The issue with pools is that it is still the producer carrying the price risk. If Pool operators are so confident of out performing the market then perhaps they should buy, and trade the grain.
John Williams
28/01/2015 1:22:59 PM

If we were better at marketing than pool managers, then shouldn’t we run a pool, or trade grain ourselves? I invest in some managed funds which far out perform what I could achieve if I traded equities myself- I suppose this is the same thing. It’s just a matter of making sure you choose the right fund manager or pool manager . I’d hate to think of the losses some people face when they try to trade equities themselves, and 'take control' of their grain marketing and watch the market fall away
Alister
28/01/2015 1:31:43 PM

I suppose this is a case of the deregulated market evolving where a commercial venture has found a niche business where they do the best for the grower, which will in turn be the best for their own business. It will be interesting to see what the future for pools is, especially if some providers continue to do well.
Stefan Meyer
29/01/2015 8:55:40 AM

Good Job Market Check. Keep up the good work.

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