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The
information in these case studies is taken from an actual
crop harvested in 2001 in Queensland. The prices used
for comparisons are taken from the AWB
National Pool Estimate, Harvest Loan as at 1st August
2002 and actual Multi Grade, Fixed Grade and Hedged
To Arrive contracts taken out during 2001 and cash market
prices available during November 2001.
| Scenario
No 1 |
$538 981.26 |
A
wheat grower in southern Queensland has set a marketing
strategy to look for forward selling opportunities at
or above a target price of $170/ton delivered to his
local depot for APW2. As his production risk allows
he conservatively hedges his crop.
Come
harvest time in late October he has the following contracts
in hand and decides if he can achieve better than the
current AWB Pool estimate for 2001/2002 he will cash
the balance during harvest.
Contracts
in hand at start of harvest
| Contract
No |
Tons |
Base
Price (APW FOB) |
| 1 |
280 |
$171.21 |
| 2 |
300 |
$203.21 |
| 3 |
272 |
$172.27 |
| 4 |
136 |
$182.26 |
| Total |
988mt |
$182.74 |
Despite
having the base prices as a guide, the premiums and
discounts applicable to each contract are different.
The current bids in the cash market are mostly based
on Bin Grade classifications and the current AWB National
Pool estimate is based on Varietal (Pay) Grade classifications.
The current bids also have slightly different premiums
and discounts to the forward contracts. Because of all
these variations in prices, the grower needs to work
out which loads of wheat should go into which contracts.
As
a result of the above complexities the grower has decided
to use WheatCalc to estimate and rank prices for every
truckload of wheat across all the above mentioned alternatives.
With this information, then decide the most profitable
way of filling his/her contracts.
The grower starts harvest and delivers to the local
depot and chooses to warehouse all his/her wheat until
a decision is made where to sell. As each load is delivered
the details are entered into the WheatCalc program.
The
price details of all forward contracts have already
been entered with current cash prices and Pool Estimates
updated daily. As the make up of the crop becomes clearer
some fixed grade contracts are sold to keep in line
with the strategy of selling if prices better than the
Pool estimate can be achieved.
By
the end of harvest the majority of wheat has been sold
with the balance sold soon after.
As
soon as harvest is completed WheatCalc is used to decide
where each load should be delivered. All except 2 loads
of Bin Grade AGP1 end up being sold into the cash market
through the forward contracts and fixed grade contracts
during harvest. The 2 loads of AGP1 end up in the pool.
The
grower achieves a price of $214.77 per metric ton delivered
at the local depot or $538 981.26.
| Scenario
No 2 |
$523 892.31 |
Instead
of using WheatCalc to decide where to sell his wheat
the grower decides to fill his forward contracts first
as the wheat comes off the trucks. The balance of his
wheat is cashed at the end of harvest.
The
best alternatives for each load are not identified.
Due to waiting until harvest has completed the balance
of the crop isn’t sold until 14/11/01 missing
out on the better prices for APH2, which were available
early in the harvest.
The
grower achieves a price of $208.76 per metric ton delivered
at the local depot or $523 892.31.
Disclaimer
AgCentric Pty Ltd shall not be liable for any loss or
damage suffered by any person as a result of reliance
on any of the contents of material produced or advice
given, whether such loss or damage arises from the negligence
or misrepresentation or any act or omission of AgCentric
Pty Ltd, its employees or its sources.
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