Farmers advised to match selling grain strategy to business objective

WITH harvest about to get underway, many minds will soon be, if not already, focussing on what the grain market has on offer for this year’s crop.

Grain markets look set to continue to be volatile, and that is likely to be amplified further by the UK’s decision to leave the EU – although the short-term impact of this has been positive due to the weakening of sterling and subsequent boost to export competitiveness.

Mind you, good cereals marketing and selling starts with the choice of crop and variety. Buyer requirements are changing and growers must ensure that there will be a market for the crop they are sowing.

They should have checked with merchants, local maltsters and millers to determine what they need.

The next important step is to examine the costs of production and compare them with the likely price after harvest.

Growers must also ensure that the variety they choose will suit their farm and that they don’t commit themselves to too much of a new variety.

As they drive their combines, transport the grain back to the store, or supervise the grain drier, most arable farmers’ thoughts should be on how to market their grain to get the best prices possible.

All too often grain marketing decisions are made to free-up storage capacity, empty a shed to allow cattle to come in for the winter, or generate cash-flow. In such circumstances, the seller becomes a pure price-taker.

Regularly updated cash-flow projections and a strong relationship with the bank can help identify bottlenecks and avoid forced spot market selling.

There are a myriad of different approaches to selling grain, all with their own pros and cons. The key thing is to match selling strategy to business objective.

Most growers do not understand marketing and their benchmarking comes from buyers who have the opposite interests to sellers.

They telephone their buyer and take their best price, but relying on buyer information to determine the best price is wrong.

Growers need to compare ex-farm prices with future prices to give them a good benchmark, then speak to several buyers to make sure they are getting the best deal. There can be £5 a tonne difference from one farmer to another with the same buyer.

Before you can work on raising your average selling price, you have to know what it is. Regardless of how high prices have been, or how low, your selling average is the true result of your final selling decisions over the last few years.

The next step is to compare your average to historically available prices. If your average is lower than what has been consistently available, your job is easy. Simply set a floor price below which you won’t sell and a price goal that is higher than your average, and work on getting more tonnes sold at that price.

That may well involve deciding how much to forward contract and how much to hold back for spot sales.

Forward contracts are an aid to orderly marketing. They can lock in a market for your grain and reduce price uncertainty, although spot sales can achieve higher prices in a rising market.

Growers may also want to consider how much they want to market themselves and how much to sell through a grain group.

Some may opt for selling little and often, for example the second Thursday of every month. That simple strategy delivers an average for the business – smoothing out the highs and lows of the season.

With so many options available, some may decide that a mixture of strategies is best.

According to Jack Watts, lead analyst (Cereals and Oilseeds) at Agriculture and Horticulture Development Board (AHDB): “With the majority of farm businesses in it for the long term and the long lead-in times to production, agriculture has to be viewed as a long-term business.

“At the same time, because we are dealing with volatile commodities, being able to make a profit every year is not guaranteed – even for the most competitive business.

“As such it’s important to be resilient in the face of short-term price movements and not make extreme knee-jerk reactions.

“Alternatively looking at profitability over, say a five-year basis, evens out short-term weather and price extremes, and gives better insight into profitability. There is now a greater incentive to consider this approach given the new tax rules which allow farmers to average profits over five years.” SIR Philip Green is expected to come under renewed heavy fire today in a scathing report by senior MPs, the Sunday Telegraph says.

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What it calls a damning report into boardroom remuneration at the biggest companies on the London stock market will describe almost universal dissatisfaction among shareholders over a set-up that sparked a new wave of revolts earlier this year.

It follows Theresa May’s promise to crack down on boardroom excess in a bid to rebuild trust between companies and the public.