Analyst Insight: New Year’s resolution – take control of your grain marketing

• New crop UK feed wheat futures firmed once more yesterday, ending the day at £161.30/t. For UK wheat plantings, wet and mild weather has continued into the New Year. With ground conditions still wet and ground frosts looking limited planting of winter crops is unlikely to gather too much pace.
• Tomorrow’s release of US winter wheat plantings data (17.00 BST) will be crucial for the market, the average of a pre-report Reuters’ poll suggests a 1.6% decline in plantings year-on-year, to 12.4Mha. If realised plantings would be the lowest since 1909 for the third year running.

As we hit January we are constantly reminded about the lengths people claim they will go to in order to become a “new me” These range from going to the gym more, attempting dry January and we can hardly ignore Veganuary.

However, even if they last the month these resolutions inevitably fade as the year progresses. This year, make your resolution something worth sticking to.

As each year passes markets seem to get more volatile, we increasingly see drivers spring up from the geopolitical and environmental spheres. Additionally, the wet Autumn-Winter and mild start to the New Year throws price of next season’s crop into question.

As each of these drivers; which are out of your control, rears their head there is an increased need to focus on what you can control.

Far from me telling you how to market your grain (Eisenhower said “Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the corn field.”), these are a few practical steps you can explore to start taking control of your own marketing.

Know your costs

Farmers are inherently price takers, with prices not dictated by individual production but regional, countrywide and international supply and demand. With little control over the price you receive the best way to know whether or not a price is a good one is to understand your cost of production.

There are many tools to help you understand your cost of production. From having a simple spreadsheet to using purpose built software such as Farmbench. Tools like Farmbench allow you to drill down into the granular detail of your business. Using benchmarks allows you to identify where you can save in order to boost your returns.

Know your market

If you know your costs it is important to understand your market. Which direction is the price heading in? What new drivers are on the horizon?

If the price of wheat is good, but all drivers point to a market on the verge of decline, it is futile to hold out for more.

As with understanding your costs there are many ways to gain an understanding of the direction of the market. We publish weekly and daily reports on markets, as well as regular updates on Twitter and YouTube.

As well as knowing the direction of the market it is important to know the requirements of the end market itself. It is very easy to lose money by not delivering what your market requires. Knowing which varieties and specifications are needed is crucial.

Understand your constraints

As with understanding your costs, knowing your constraints is important to defining your approach to selling grain. The nature of on-farm storage may dictate the need to either sell grain for harvest movement, when prices are typically at their worst, or sell into centralised storage. Equally, knowledge that you have immediate outgoings can necessitate the need to sell.

Having an understanding of your costs, market and constraints can help to ensure returns even when the market is undervalued.

Is it the right time to sell?

Once you know your costs, constraints and what the market is doing you are in a much better position to determine whether now is the right time to sell. One final piece of the jigsaw is understanding your basis.

Basis is the relationship between the cash price you are offered and the futures price on any given day. Understanding your basis and how it changes informs you of changes in the local market relative to the domestic market as a whole and the global market. 

When you know your average basis, you can begin to identify trends in the present basis signalling the direction of demand and helping you to determine a strategy for selling.

In next week’s Grain Market Daily’s (Weds 15^th and Fri 17^th) we will be exploring the potential changes in basis and delivered premiums through 2020. This year, we aim to deliver more domestic orientated market information and marketing strategy advice to help manage price risk in an ever changing global commodity market.

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