Marketing Alternatives
Farmers in Australia are among the most efficient grain producers in the world. New equipment, cultivation practices, seeds and crop inputs are quickly adopted to increase yield, quality and land sustainability.
One of Cargill's business goals is to help growers market their grain with tools that are as effective as those used to produce the crop.
As the grain marketing environment in Australia continues to evolve, growers have to continually assess what is the best way for them to market their grain to gain the maximum income. Cargill offers a range of contract types, each designed to provide differing levels of flexibility and risk management. This allows growers to chose a contract that suits their individual circumstances and risk tolerance.
Before choosing a specific type of contract, we recommend that you develop a grain-marketing plan that clearly establishes your individual objectives. Whilst this may sound as though it is stating the obvious, a successful marketing plan will aim to deliver a return on your investment while maximising profits in good years and minimising losses in poor years.
This information is designed to give growers an overview of the contracts Cargill provides and does not contain specific contractual terms and conditions relating to each specific contract. Some of the marketing alternatives are more complex and require knowledge of the risks associated with derivative markets. These alternatives may not be suitable for all growers. For further information regarding Cargill’s marketing alternatives we recommend you contact your local Australian Grain Accumulation representative.
Cash spot contract
This is a sales contract where the grower agrees to sell Cargill a specific quantity and quality of grain or oilseed into a specific receival depot on a particular day. This sale occurs by delivering to Cargill’s daily published price at the relevant bulk handler depot during harvest time only. The price, including any discounts or premiums for quality if applicable, is set at that time. Payment is made within 30 days from the end of week of delivery day or can be deferred if required.
Available for:
- wheat, barley, sorghum, oats, canola, sunflowers, and soybeans.
Advantages
- Locks in a guaranteed price – the seller receives a 100% payment within 30 days from the end of week of delivery.
- Risks of condition and storage pass to the buyer - no future arrangements are necessary.
- No interest costs are incurred.
Disadvantages
- Price flexibility is eliminated.
- Seller bears price and quality risk until grain is sold.
- Cannot be used in conjunction with warehoused grain or oilseeds.
Cash forward contract
A forward cash sale or forward contract allows the seller to contract for a specific quantity and quality of a commodity for future delivery or title transfer from warehousing at a guaranteed price. This contract establishes a fixed price for the commodity for a specific delivery period (buyer or sellers option) with any applicable quality discounts or premiums to apply. The contract can be established by contacting your local AGA representative. Payment is made within 30 days from the end of week of delivery day or deferred if required. The forward contract allows growers to lock in a forward market price before they can physically deliver the grain. A variation of this contract is when a grower chooses to store grain and to forward sell into a deferred position.
Available for:
- wheat, barley, triticale, sorghum, oats, corn, canola, sunflowers, soybeans and cottonseed.
Advantages
- Locks in a guaranteed price.
- Provides an alternative to marketing your grain during harvest.
- Delivery location flexibility (bulk handler, Cargill plant, Direct to end user)
- Can be utilised with warehoused or onfarm grain and oilseeds.
- Seller is protected from any market downside.
- Simple contract and easy to execute.
Disadvantages
- Seller is committed to deliver against the contract.
- The seller is unable to take advantage of any market improvement.
- In the case of wheat, the seller is locked into a specific grade.
Cash sale forward contract - Multi-grade wheat
The multi-grade forward wheat contract enables growers to forward contract their wheat prior to harvest without declaring the grade of wheat that will be delivered. The prices for the various grades are set upon establishment of the contract and are based on the Australian Premium White (APW) grade. The grower then has the option to deliver any grade that is nominated on the contract within the specified delivery period.
Available for:
- wheat.Advantages
- Locks in a guaranteed price without locking in a specific grade, reducing the seasonal risks of grade variations.
- Seller is protected from downside price risk.
- Simple and easy to execute.
Disadvantages
- Seller is committed to deliver against the contract.
- Seller is unable to take advantage of any market improvement.
No Price Established contract
An NPE (no price established) contract allows the seller to contract a specific quantity and quality for delivery without fixing the price until a later date. When the contract is established, the seller and Cargill agree to a final date when the contract is to be priced. The seller receives a 70% interest free advance payment upon delivery. The seller can then price any portion of the contract prior to the final pricing date. The price will be based on Cargill's daily published price for the delivery period that is specified within the contract. NPE contracts suit the seller that believes the market will improve after the agreed delivery period.
Available for:
- wheat, barley, sorghum, canola, sunflowers and soybeans.
Advantages
- Seller can capture the benefit of a price increase after contracting or delivery of their grain.
- The seller does not incur storage and interest costs of carrying grain to capture a future price movement.
- Pricing decisions are not dependent upon delivery of the commodity.
- Seller may chose to price a portion of the contract and receive full payment for the priced portion of the contract.
Disadvantages
- Seller only receives 70% payment until the commodity is priced.
- Seller is subject to any decrease in price.
- Seller is committed to a final pricing date.