It’s a handy tool, especially at a time of year when harvesting stresses can leave many grain growers time poor. According to the report, for many growers, the question “do I, or don’t I pool” is just one of many whirring around awaiting a decision during harvest.
It is worth noting the pool industry has evolved significantly over the last 10 years. In 2007 there was one operator, one product and 70-80% share of the Australian wheat crop. Wind forward a decade and last harvest there were 11 operators, offering 37 products and competing for an estimated 10-20% share of the Australian wheat market.
Whilst most growers are spoilt for choice when it comes to the pool products available to them, this choice also means the decision making around pool decisions has needed to evolve too.
Profarmer says to consider the following key points:
Step one: Why consider a pool?
Pools are just one many tools available in the selling toolbox. Their suitability must be weighed up against the alternatives; warehouse and contract, cash sales, managing your own post- harvest program or using derivatives to hedge some of your price risk. For some, a pool product may replace one or all of these elements or it might be used in conjunction with some of these alternative approaches. Some reasons for considering pools include;
Step two: consider the drivers of performance
There are four key drivers to pool performance which include experience and expertise of the pool operator and manager, the pool governance, the pool strategy or mandate and market factors.
The final pool return will be as a result of all these items combined, so before you choose a product it is critical that you understand each of these elements.
It is the responsibility of the seller to do their due diligence to choose strategies that align with their own view of the market and choose pool operators who are qualified to execute on the strategy.
Step three: don’t compare EPR’s
EPR stands for Estimated Pool Returns, and they are just that, an estimate. An EPR provides no guarantee of performance, and a higher EPR does not mean that pool will achieve a higher final return and finally, an EPR provides no insight in to the pool strategy.
Step four: take your time
Finally, don’t rush in to a pool decision. Pool decisions should be made alongside contract allocation decisions when harvest is complete and the growers knows exactly what there is available to sell. Most products will remain open well in to January.
As with all decisions, choosing a pool is about choosing a product which offers both risks and rewards which are acceptable. It is essential each seller understands the risks of the product they are entering in to.
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