OFTEN when talking grain prices with growers and advisers, you find that most have certain rules they use to help govern their marketing.
Anything from selling canola when its double the price of wheat or selling a certain percentage once APW1 prices hit $300 FIS and so on.
These rules are fine to incorporate into your marketing strategies, but much like deciles, they shouldn't be used in isolation, as they offer no insight into why this certain rule has been met or whether it may continue.
For example, selling $300 FIS over the past few seasons hasn't rewarded the seller, as prices stormed past this milestone and offered much better opportunities later down the track (not to mention the production risk associated with forward selling early).
The other one is focusing on selling wheat versus barley when spreads are historically 'wide'.
This is another rule that has led the market down a troublesome path recently, as the deep discount for barley versus wheat persists.
When it comes to the price relationship between wheat and barley, the focus is typically around which one of these commodities is better 'value' for feed grain consumers domestically.
The general rule of thumb is at a deeper than $30-35 per tonne discount, consumers will use barley versus wheat where possible.
This isn't correct, as it fails to take into consideration factors such as quality, protein, cost of other inputs etc.
Also, considering the volatility in grain prices, we need to look at it in percentage terms - where the rough rule of thumb is that barley becomes preferred when it's a wider than 12-15 per cent discount to wheat.
The current spread is about 25pc, or a whopping $75/t from ASW1 down to BAR1 in Victoria and a bit narrower in Queensland.
This means the spread has hit levels where domestic consumers are willing to switch.
The reason barley has continued to discount versus wheat is that relative to the wheat balance sheet, barley stocks both overseas and here are burdensome and demand is shaky.
Barley has been rocked by the anti-dumping tariffs imposed by China, which accounted for 70pc of our export program.
More recently, China is buying an eye-watering amount of wheat at the same time weather concerns in the United States Southern Plains and Russia has the wheat market charging forward.
Considering the tighter balance sheet, this is having a much bigger impact on wheat and hence barley prices have barely moved while wheat rallies.
Barley starting to work into the feed ration does give us confidence that demand will begin to pick-up versus wheat, and we should always take the spread into consideration.
Unfortunately, the domestic demand can't take the entire crop, and the world is hungrier for wheat than it is for barley.
By selling wheat instead of selling barley, you're effectively selling what is in relatively less supply and holding onto what is relatively oversupplied.
There is plenty to be optimistic about when it comes to barley prices versus wheat, however not selling barley and only selling wheat just because the discount is wide is not a strategy that has paid dividends for some time.