With harvest all but safely gathered in, it is a good time for growers and advisers to reflect on the past season and consider what they might have done better, writes David Bolton of David Bolton partners.
Many farmers are good growers but they need to improve their marketing. A lot of people put a massive effort into growing decent crops for harvest 2014 but downward price pressure means it has become much more difficult to turn that production into profit.
To sell grain profitably you need to do your homework – months if not more than a year in advance. It’s a good idea to start at least a year beforehand with your cropping plan, yield forecasts and details of any storage capacity you will have at your disposal.
David Bolton Partners
You also need to devise a decent cashflow projection – how much money the business will need and when – as well as an early outline of your expected yields. Doing this at least three months before you intend to get any crops in the ground will help get you off on the right foot.
A key element of good selling is budgeting your revenue carefully. That is where the profit is. Hopes and aspirations do not pay the bills. People talk about the extreme years – when big money is made or lost – but the guys who get good average prices year in, year out often do so quietly.
Keep an eye on the markets too. Some of the best grain traders – such as Thorsten Tiedemann of Toepfer International – know volatility is opportunity. And they capitalise on that. But they do so by careful planning and monitoring the market, not by relying on luck.
The amount of grain you should sell forward is largely related to the price you can get and your attitude to risk. But it needn’t be scary. Deciding not to sell ahead because it gives you the heebie-jeebies is gambling that the market will move in your favour and can result in big disappointments.
By not selling ahead, you are risking a lot of money blind because the market may move against you. But if you have a finance plan, you can start to watch the market and sell forward or buy back according to the way the market is moving – maximising returns and minimising losses.
But you shouldn’t just be monitoring price. You should also monitor grain volumes, crop plantings and progress in other countries – especially those that are major producers. Keep an eye too on weather patterns, the usage of wheat across the world and forecasts of year end stocks.
Doing all of this, you can build up a good picture of prospects for any given crop – and you can do this months before harvest. Between November 2014 and March 2015, there will be lots of information that will help you decide the best time to sell wheat that won’t be harvested until August 2015.
Weather-wise, temperatures between February and March often determine likely yields at harvest. Sunlight and rainfall during the period between April and June are also important determining factors. So be careful not to sell too much grain forward too soon.
Ability to store crops is important too. Since agricultural buildings allowances were abolished, there are no tax incentives to build grain stores – and of course it is impossible to store crops unless you have the facility to do so, either on your own farm or elsewhere.
This time last season, higher prices meant some central stores contained very little grain. This year at a comparable time it is a different story because yields are up and prices are lower. Storage is your friend. It isn’t good to be forced to sell at any price just because you lack capacity.
That said, cashflow requirements are a big consideration. Clients have sold 2015 harvest already. And they have budgeted their wheat at £130/t for 2015. We have been able to do some deals for 2016 for better than that – so we have sold a little.
You should base your budgeted price on a reasonable aspiration by looking at the futures market. But you should also take into account whether you will make any money at that price.
If you won’t, you need to reduce your business costs or inputs so you can be sure of a profit.
Traditionally, a lot of people sell 40% before harvest starts, 20% off the combine or after harvest and the remaining 40% in the new year. But a shift in recent years has seen a move towards 60-70% sold before harvest.
As much as anything, if you think you’ve got a flat market, you should look to secure your budget price or better. Some people are like rabbits in headlights – the picture has been known, analysed and discussed but they still think the market will get better. Sometimes it won’t.
Different growers have hugely different attitudes to risk and reward. Some growers can afford to be gamblers – and can enjoy a flutter. But others are justifiably more conservative. Either way, your marketing strategy for harvest 2015 should already be on your agenda.