How voluntary grain pools work in Australia

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Last week, three of FarmLink’s professional women grain marketers joined on a study tour of seven women farmers and grain traders from Australia. The trip was hosted by a cash grain brokerage company called Agfarm Australia, which helps farmers sell their crops for higher prices. Over the course of their visits and tours, FarmLink gained some very interesting insights into how voluntary pooling is working in Australia. All of the aspects of these contracts are workable in western Canada.

The Australian Wheat Board (AWB) lost its monopoly five years ago, and was since bought by Cargill. Them, along with Viterra, GrainCorp, Glencore and a few other buyers of Australian grain, all offer voluntary grain pooling contracts to their producer customers. Agfarm’s voluntary pooling contract has some advantages over the others, related to the fact they work solely with producers, and because the company is focused on getting the best possible prices for the farmers who put their grain in the Agfarm pool.

Here’s how it works: Producers can choose from a five or 10-month pool, and the pools are run for canola, wheat, barley and sorghum. Grain has to be committed to the pool within about two months of harvest. Farmers can deliver to almost any elevator of their choice, as Agfarm has agreements with facilities covering 95 per cent of the capacity across the Australian grain belt (about 300 individual delivery points).

Agfarm Australia’s policy is to sell an equal portion of the crop every month. Their focus is on offering out their tonnage to all their buyers, and extracting the maximum value possible. They don’t hold an opinion about short-term price direction or try to time sales into futures market rallies, instead they work industry relationships, logistics expertise, their knowledge of the local trade and their feel for where and when the best value comes available. Premiums are achievable by accessing markets otherwise unattainable by individual growers and accessing scale benefits.

Agfarm Australia also offers a three-month pool, which they call their ‘harvest pool,’ because it provides the most cash up front, including an ‘initial payment’ made within three days of delivery (Note: standard grower payment terms are 30 days end of week of delivery). Figuring out which of the voluntary pool option to use hinges on the producer’s individual needs and risk tolerance: basically, the longer the pool period, the longer the marketing window giving greater exposure to the market both positive and negative; whereas the shorter the pool period, the sooner they get paid.

The payment terms under Agfarm Australia’s voluntary pooling contract are particularly attractive. On the 15th of each month, they issue a payment based on the previous month’s price. So if you marketed 1000 tonnes of wheat into the pool, and the average selling price was $255/t in the first month, two weeks later you would receive a payment for $25,500 (1000*10%*$255 = $25.50/t or $25,500). Each month afterwards you’d receive similar payments regularly; almost like receiving a salary for grain production.

Each month, they send a financial statement to all growers who delivered into the pool reporting sales to date and the performance of the program. The program is finalized prior to the next harvest, enabling growers to evaluate how the voluntary pool performed in the past year before making any decisions for next year’s marketing.

Article courtesy FarmLink Marketing Solutions.

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Geographic location: Australia

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