There is an age-old maxim about how to achieve security when it comes to selling an arable crop, and it’s this: sell a third at harvest, sell a third on contract at a fixed price, and sell the remaining third on the open market, carrying the risk that the price might fall.
Although times have definitely changed since that adage was coined, the necessity to achieve an immediate return to pay the bills, and the concurrent desire to maximise the price you achieve for your crop, will always mean it is a question of timing.
In years like 2024, when the grain price was very poor at harvest, more farmers are seeking to wait to achieve a better price in future months – but this approach requires both ample good-quality storage and the financial wherewithal to manage the cashflow given the delayed income.
This is where Grain Co-operatives come in. As well as offering storage in quantities (which would require significant investment for smaller family farms in particular if they wanted to build, not to mention the soaring running costs), they can also offer an advance on the crop, financed at rates which can be very competitive – due to the mutual nature of Grain Co-operatives.
The depressed prices we saw for the 2024 illustrate the kind of uncertainty and volatility which can exist within grain markets, and for those who for future harvests might need to hold out for a better return. Grain Co-operatives can offer a really flexible solution, as well as giving individual farmers a stronger group position when it comes to actually selling the crop.
Growers commit to an individual tonnage, along with other farmers, to create a larger pool to then be marketed within the co-operative. Farmers within the pool are then paid at the average return of that crop. Helping to spread the risk during times when the market is particularly volatile, as shown in recent years with the turmoil created within the grain market with the war in Ukraine, managing that risk is of growing importance and can help add value during such periods.
The benefits are clear: the storage itself is both available and potentially cheaper than can be achieved commercially (and for small farmers, often more cost-effective than building and maintaining their own storage facilities); and the access to finance to cover the cashflow deficit provides flexibility and if deemed necessary, makes delaying selling the crop much more feasible, even for the smallest concerns.
In addition, farmers can rest easy in the knowledge that their crop is being kept in dry conditions and is being properly stored and managed, so that its quality (and hence the end price received) will not degrade.
With volatility around grain prices, now could be the time to think about how the advantages of Grain Co-operatives could really come into their own for future harvests. Those who have not yet investigated this approach would do well to take some advice on whether it would work for them.