WHILE technology means farmers can have pricing information at their fingertips in real time, the key to successfully marketing your crop remains not in the information itself, but in understanding basic risk management and knowing your cost of production.
That’s the message from National Australia Bank’s head of agribusiness markets Greg Noonan.
He said volatility in grain prices over the course of every season can provide opportunities for growers to catch the peaks – but only if they do the preparation and are ready to act when prices move.
Mr Noonan said the first step was in knowing your true cost of production per hectare, including finance, followed by establishing a margin above this that represents a sufficient return to account for the risks associated with forward selling.
“No matter how you forward sell your commodities, you must track yield weekly and ensure you never hedge more that you physically have in the paddock. In most dryland cases the rule of thumb is to hedge less than 50 per cent and manage it under that level.
“Every grower will have different yields, cost variability and equity levels in land and machinery and all these factors will impact risk appetite and where an individual grower can comfortably manage their price risk in the forward market.
“Orders that are ‘Good Until Cancelled’ are utilised by many growers. They sit there until the price reaches the level you want, and then get automatically filled.
“That saves you missing the boat if it’s a short term rally and you have to run around trying to get an order on to sell before the price drops again. Clients who were fortunate enough to have reasonable seasonal prospects early in the season used Good Until Cancelled orders to take advantage of the stronger prices we saw at and prior to sowing time”
Growers are urged to get professional advice when considering forward selling or other forms of hedging, as there are potential risks as well as rewards.