Agriculture Investment Update – 20/10/2020
To Hold or Fold.
As harvest draws near the question on all farmers minds is whether to sell grain at harvest or hold. Each commodity has their own separate balance sheets and market forces and typically one commodity over another may hold greater merit to sell. Harvest prices are influenced by a number of factors not in the least supply and demand, price, the domestic and global balance sheets, weather (current and forecast), regulation, tariffs (current or suspected), export demand, export pathways, sentiment, domestic cover etc, etc. However, unfortunately the big factor determining whether to make sales or not is cashflow. I previously advised selling into mid season strength to cover some production exposure (covering costs) however if you did not have the comfort to do this, that’s understandable. After 3-4 years of trying conditions, many farmers will be seeking to pay down overdrafts and service debts. I suspect that may will need to sell grain at the highest bid to cover these commitments, with the balance of grain sales to the be determined on the merits of each commodity. To this end, prices generally are above long term averages which provides an opportunity to sell now with some comfort. International prices are looking positive however proposed regulations or tariffs in commodities such as barley is concerning. The main point that we want to make, is make a focused decision that suits your own personal circumstances. You have been working on this crop for at least the past 18 months, so please devote the time to market it right. We get frustrated with the term… “its all too hard”. There are numerous marketers, brokers and traders whom would be more than happy to give you their views. Take them on. As a trader previously, I welcomed any grower whom contacted me as (I promise) the information flow was a two way street! All the best in getting it into the bin first!! The views provided below are general…
Wheat. Prices are currently underpinned by international strength however we would offer selling into an increasing markets / rallies. You could alternatively sell cash and buy call option or fix basis and seek further AUD weakness and or US Futures strength however prices are good, so take some money off the table. Protein spreads could widen if we get a rain event. Price indications from the market indicate there will be good supplies of protein domestically to which we agree (without rain).
Barley. Its a difficult one. Malt spreads are terrible and feed barley prices are suspected to come under further pressure. Good rain will potentially see large volumes of summer crop (sorghum) supplying feed grain demand further compounding price. Northern NSW and SE Qld will potentially see larger sorghum crop in place of low water allocations from a reduced / smaller cotton crop.
Final note: Having a long history a financier and trader, on farm storage is essential if you are on the East Coast grain belt. Given factors such as increasing domestic demand, quality assurance, high volume harvesters, protein and blending opportunities, we have seen on farm storage grow and provide strong investment returns. To this end, we have seen large silo infrastructure investments pay themselves off within less than 3 years. Maybe something to think about after harvest? We have access to a broad range of financiers to quote (for the silo infrastructure stand alone) to get you sorted for next season. We have a range of financial models to represent the value of additional storage to get financial support.
I think we are all over it however the resilience of a strong agri investment within your portfolio makes prudent sense. Commercial property (CBD) is under extreme pressure as is retail property. Manufacturing is going ok however as stated, agri is the shining light in a property portfolio even after the worst drought on record!. That has to say something about the industry that we are all passionate about! COVID has cast the economy, technology, living and working conditions forward 10 years and we are all trying to see where the opportunities lie ahead. The market has fundamentally changed and what was the norm last year may never be again.
As above, many of you will be now relieved to be able to satisfy the Banks needs at the end of this crop harvest. If you are looking for advice around reviewing your current Bank or seeking to now re-structure your facilities, drop us a note. We have had experience across the wide scope of core debt, working capital, trade finance, equipment finance and markets products providing facilities up to $100M to individual clients.
Have a great weekend and we (for once) hope the rain stays away!
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