Comment

Harvest start needs offset of price pressure

By Tom Reichstein
November 5 2021 - 11:46pm
TRICKY CHOICES: Harvest may represent the end of the growing season, but it also requires many decisions to ensure the best value is received for crops. Photo: SHUTTERSTOCK

Headers are starting to roll as harvest begins in some traditionally earlier finishing areas, while other regions are still looking later into November to get things started.

In terms of grain pricing, harvest usually weakens the market as more grain enters into the system. This is often referred to as 'harvest pressure'.

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In the latest ABARES Australian Crop report, the total winter crop is expected to come in at 54.8 million tonnes. This is 32 per cent higher than the 10-year average.

In SA, we are not expected to reach full production capacity in comparison to other states, but will still be close to 10pc higher than average yields.

Prospects of an above average local crop may trigger harvest pressure to hit harder and earlier. There are several key reasons why local buyers and traders want pricing to fall this season, as more grain comes out of the paddock.

Our local grain pricing presently sits at decile 9 values, or higher, for wheat, barley, canola and lentils. This is being supported by poor production in northern hemisphere growing regions in the past couple of months.

The ability of the trade to buy such a large crop all at once is not feasible. If you are a business that needs to have harvest cashflow, be aware of this. You may need to take forward contracts to ensure you capture price, without being forced to sell when at peak harvest pressure.

Next is the logistical practicality of executing all the grain that ends up in the silo during harvest. Once growers end up with grain in the system, they are looking for quick cashflow, either filling forward contracts taken out during the season or selling for cash once delivered.

The fact is that not all the grain is shipped out in those months, therefore the trade lower the price once their capacity to fund it is lowered.

The reason behind this is that they will cause panic and growers will sell at a reduced price, lowering the risk for the buyer who is now responsible for the storage of the grain.

The flipside is the grower may not sell and will sit on their grain hoping for the price to recover once the pressure subsides.

A range of new products and contracts have been introduced to assist with the stress put on to traders' cashflow and buying capacity.

These involve premiums for deferred transfer and payment of grain into January and February.

We have seen a big push towards on farm storage and delivering post-harvest.

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These post-harvest buyers-call contracts alleviate the pressure of harvest logistics but put the risk back on the grower to manage the storage.

Good quality storage management is the first step in handling the risk, but you'll also have to factor in the buyers-call aspect. This could mean anytime in the period of the contract they can call on the grain - even if it is when you are on your post-harvest holiday.

Make sure you know the finer details before locking any tonnes away this harvest.

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Harvest pressure will most likely keep the pricing low until early January, but what are the prospects of the market strengthening into the new year?

The Chicago wheat futures are trading at levels not seen since 2014. With drought striking key growing areas in the United States and Canada this season, coupled with dry sowing conditions for the Black Sea region, this is providing a tight supply and demand balance sheet.

These factors are good news for Australian growers. The demand for our wheat will be high to cover shortfalls from these major northern hemisphere producers in the coming year. However, we will not supply enough in the short term.

This all points to well supported pricing for our grain into 2022.

  • Tom Reichstein is a consultant with Pinion Advisory.

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