OPINION: A SMART pool manages your risk and diversifies your marketing. It needs to be well executed, follow an investment mandate and be independently audited. The choice is there for growers.
It’s a fact of global trade that war in the Ukraine, rain in France, or a US Federal Reserve announcement, whilst impacting its own citizens, can send grain prices sky rocketing or plummeting, or both.
The Australian grain market can be one of the most volatile in the world. And combating this price volatility when selling grain is one of the toughest things a farmer has to do. Grain pools in the last decade have emerged from a number of providers in an attempt to help growers navigate this volatility.
There are pools and there are pools, with varying objectives set by their providers. Benchmarking is plagued with issues, as programs and the strategies they adopt all differ, as do the operators themselves.
It’s good to see farmers making more inquiry and getting more active about their grain marketing decisions. Good operators invest heavily in disclosures, independent auditing and reporting around their programs.
The industry has removed much of the murkiness and transparency issues that plagued some pool operators. Through the Operating Standard for Grain Pool Providers, the GTA has set a standard for pool operators to adhere to. Good operators are using this as a minimum standard.
As with any form of industry standard or a regulation, interpretation is critical so unfortunately a farmer cannot assume that all pool operators are the same.
Operators should clearly disclose how they will measure their own performance and report against this to farmers in their programs just as any fund manager reports to their investors. Ultimately if farmers are not getting what they need from a program, including clarity, they should vote with their feet.
And why go with a pool in the first place?
AWB offers the pool as a smart tool to manage risk which also provides smart alternative ways to manage farm finances.
A pool diversifies the way the farmer is marketing their grain, allowing grain to be sold over a period of time in an effort to capture strong prices and ride through the low prices. This helps protect the farmer from volatility that is completely out of his control.
While farmers would love the highest price I know they value security, timely payments, consistency, transparency, customer service and additional business benefits, so I don’t simply just promise the highest price of the season. But that’s not to say I don’t target for that to happen.
We provide a pool with advanced payments to help pay bills, that can also manage tax exposure while accessing simple and low interest rates so cash flow is not adversely affected. The benefits of this can outweigh any outperformance in price return.
Like an investment, diversification can best capture value or spread risk. It’s fantastic to see many farmers keen to sell some of their grain on the global market themselves using cash markets, derivatives and other tools available to them. But just like equity investments, having a trusted and experienced global trading team working 24-7 for you via a best practice, reputable pool will ensure you have a truly diversified, smart portfolio this year.
This season growers should continue to make informed decisions, aided by greater transparency in pools.
Charlie Brown is Pools Portfolio Manager at AWB. He grew up on farming properties near Glenmorgan and Quinalow before heading to boarding school in Brisbane and then completing a Bachelor of Agribusiness at the University of Queensland, Gatton Campus in 2000. Of his 15 year career, Charlie has spent nine within the Australian grain industry and the other six trading in international commodity markets.
