Regional Review
Issue No. 15 - February/March 2004
The Forward Factor
by Chris Heinjus
As we get further into 2004 and the holiday period ends it is time to reflect on the production season of 2003—04. Taking time to reflect is a powerful learning tool. If done correctly we can identify what worked and what did not. We can then strive to repeat what worked and avoid what did not.
One of our biggest observations is the realisation that every grain sector, at the end of the day, is a commodity sector driven by the whims of the international market.
Some of the key factors of the 2003—04 season were:
- Flow on effects of the drought conditions experienced the previous season
- Return to average to above—average production
- Rising value of $AUS versus $US
- Tightening international grain stocks
- Diversity of grain quality
- Increasing international ocean freight rates
- Increasing complexity of the market place
Some of the key challenges for the 2004—05 season
- Recognising the needs of your business
- Managing commodity and price risk fluctuations
- Continued reviews of traditional single desk marketing for wheat and barley.
Flow on effects of the drought
This was one of the greatest lessons from last season. Producers generally reacted to the impact of the drought rather than learning from that season. A common mistake was to reject all forms of risk management as being too costly. People who utilised forward contracts to protect a percentage of their price risk are currently up to $50/t in front of those who did nothing. Whilst forward contracts are not everyone’s cup of tea they can provide useful protection against falling commodity prices.
This reaction has placed a heavy reliance on traditional pooling systems for grain marketing. These pools are directly exposed to international commodity price and currency fluctuations for the next 12 months. This can be either positive or negative depending on which way the commodity price heads from this point.
If pools dro...
