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Think Agri Real Insights

Season 3, Episode 14

May 2022

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Introduction

Welcome to another episode of Think Agri Real Insights. As you finish up cropping and other farming activities that have consumed much of your time, I invite you to reflect on the year so far and challenge your mindset and thinking within this episode – especially when it comes to effective grain marketing.

The tools and knowledge in this episode are designed to:

• raise awareness of the current issues impacting you and how you can think differently about them
• Lean towards acceptance of what is out of your control
• take action to move closer to your personal and business goals

This fourteenth episode of TARI contains just one article as it is longer than the usual snippets and will take a bit of thinking and digesting. The topic dives into thinking, feeling and doing for implementing effective grain marketing. It tackles common anxieties around grain marketing, seller’s regret, volatile markets, resulting bias, focusing on controllables and strategic implementation.

Remember grain price movements are not in your control. By stressing less and choosing to spend time invested in furthering your knowledge, you are already taking a step in the right direction.

Happy reading, listening, thinking, feeling and doing!

And good luck

Kate

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Introduction

Grain prices for most commodities are strong and markets are somewhat volatile which presents a wonderful opportunity but can cause angst.

Grain marketing is repeatedly cited as one of the most stressful aspects of a grain growing business. Based on the experience of selling our canola in my own very short farming career, I would have to concur with that sentiment.

Grain marketing is just one aspect of the business that needs implementing. Effective implementation is a function of how you feel, how you think and what you do. More on this in Think Agri Real Insights Episode 3.

This article delves into thinking, feeling and doing for more effective grain marketing implementation. Please note this is not financial advice nor grain marketing advice.

1. Know you are not alone in feeling anxious about grain marketing

From business to business I see various permutations, combinations and preferences of

• Price risk management 
• Selling strategies
• Grain storage and handling strategies
• Risk appetites
• Production risk strategies

One common factor among the humans in each and every business is anxiousness about grain marketing and especially seller’s regret (the self-imposed suffering based on hindsight). A quick google search on crop marketing or seller’s regret several articles written by farm consultants, academics and marketing advisors around the globe tackling this subject.

2. Sellers’ regret occurs because you are human, but it is a choice

It is human nature to feel anxious and to overthink decisions, especially when money or performance is involved and when the future is uncertain. Perfectionist tendencies or poor self-esteem can exacerbate self-loathing. Sporting professionals spend a lot of time training their mind to avoid performance regret and to focus on the present and the next big game, without ruminating on past results. They know regret is not productive and will inhibit their ability to perform well in the next game. Take a leaf out of their book and choose to focus on the present and the future.

3. Choose to leave past sales in the past

I could easily have the seller’s regret if I chose to. On our little farm we had an above average yield of canola but for a number of reasons I hadn’t got around to selling our small tonnage in early November. It’s fair to say, I may have been scrolling prices on emails at 4 am and chastising myself for not acting earlier. The big dip in price happened and thanks to some sage advice we waited and waited and waited until the new year. We sold eventually and then war broke out and the price jumped again. Of course I had seller’s regret again until I realised, the decision making process was sound, and I can’t read Vladimir Putin’s mind. Instead, one thing we can do is choose to not have seller’s regret.

So, are you thinking about the difference between your 2021 grain sold price and today’s price and mourning the income you never got?  One thing you can do is choose not to live in the past.

4. Volatile markets by definition go up and down quickly and this is a very volatile time 

Referring to data that is factual and high quality improves our thinking. Analysis by Andrew Whitelaiw for Thomas Elder Markets demonstrates the  market volatility of wheat futures on the Chicago Board of Trade. The volatility experienced in recent months is similar to previous extreme periods of either financial market instability, global supply shocks or a combination of both.

Compared to the last extremely volatile period of 2008, the current situation is extremely volatile. Note that the traditional months for volatility are July/August which coincides with the Northern Hemisphere harvest. As Andrew Whitelaiw warns, we don’t know what the next few months will hold. 

Choose to forgive yourself for being human and being unable to predict price movements in volatile times.

5. Sellers regret is “resulting bias” in action

Historical data for each commodity and deep knowledge of market dynamics can inform various post-harvest price trend possibilities. 

Historical data cannot predict war in grain producing countries and it cannot predict the government policy of other nations. When you were quite rightly selling grain in between October and February, you could not have predicted the current drivers of grain prices. 

Associating the quality of a decision based on an outcome is called “resulting bias”.

As Oddmund Groette explains

“Most people tend to rank their decisions on the outcome: A good outcome is a result of a good decision, and a bad outcome is based on a bad decision. We judge the quality of our decisions on the outcome, not the other way around.

But you can have a good outcome despite a bad decision, and you can have a bad outcome even though the quality of your decision was good.”

Resulting bias makes us think we are smarter than we are and that we have more control over outcomes than we actually do. We mix up the luck component with skill. Annie Duke, author of Thinking in Bets, says “the quality of our lives is the sum of our decision making quality and luck”.

Do be kind to yourself and don’t bemoan the rapid market rise the day after you made a sale or the rapid dip on the day you decided to keep grain a little longer.

6. Understanding visibility and availability bias helps refocus on the controllables

Pricing seems to get more attention than productivity because it’s visible and available, so our brain thinks it’s more important than it really is. Availability or visibility bias is our brain’s tendency to assume that the most readily available information is the most important. It’s the squeaky wheel that our thought processes are drawn to subconsciously and that is why it causes so much angst.

Many years ago, John Stuchbery, Liam Lenaghan and I ran a pilot project with GRDC funding in conjunction with the Bureau of Meteorology.  We wanted to automate text messages that signalled whether or not the weather conditions such as wind speed, temperature and delta T (humidity and temperature) were appropriate for maximising spray quality and efficacy and minimising drift.

We would get text messages at ridiculous hours of the night and during the day. Throughout the process, I became a lot more aware of the daily changes in weather conditions (and I learnt to turn the phone off at night if I wanted a decent sleep!). This was a positive example of visible information creating awareness and ultimately creating better decisions.

Visibility isn’t always so useful. Daily price alerts are great for real time awareness, but does it place an overemphasis on the importance of grain price in the profit equation? Imagine if every morning you woke up to a text that gave you the updated potential revenue and profit of your crop. Add to that daily water limited yield potential, plus your variable and fixed expenses as well as the daily price. I wonder if increased visibility of those factors would put perspective around each component of profit.

It is well documented that while price is an important profit lever, cost effective productivity (enterprise gross margin optimisation) and fixed cost structures have a greater influence than price. In order to capture the opportunity of this higher priced environment, understanding the potential productivity and achieving it in a cost effective manner is vital. To refresh your memory and find out more you can visit Episode 13 of Think Agri Real Insights.

Be mindful of visibility bias and remember yield exploitation is the biggest lever we can control.

7. Implementing effective grain marketing starts with strategy

With greater awareness of the thinking traps involved in grain marketing and the emotions involved, what can you do about those things and how do you bring them together for effective implementation? Here’s what I’ve learnt along the way:

• Be aware of price movements, but not obsessed. Play a straight bat and be careful with marketing instruments you don’t understand.
• Build yourself a grain selling framework based on your personal risk profile. Think about your preference for selling and storing and your previous experience and knowledge.
• Seek advice from experienced grain selling professionals, but remember it’s advice not a directive.
• Do focus on your likely production by updating both water limited and nitrogen production scenarios. These are the sums that will inform your marketing strategy and direct your input expenditure. For more information please see Episode 2 and Episode 6 of Think Agri Real Insights.  

Disclaimer. This article is not grain selling or financial advice. Seek advice from appropriately licensed professionals. Past occurrences do not represent the future.

Summing Up

• Grain price movements are not in our control.
• Realising the water limited yield potential on offer is largely within our control by implementing sound crop husbandry.
• Choose to stress less by ditching seller’s regret and grain selling anxiety.
• Choose to spend time creating a grain selling strategy for each commodity based on grain marketing and seasonal climate deciles.
• Choose to check in with that framework in the heat of the moment.

Disclaimer. This article is not grain selling or financial advice. Seek advice from appropriately licensed professionals. Past occurrences do not represent the future.

References

Do You View Selling Grain with Anxiety and Regret, Analyst Asks

No Regret Crop Marketing: 3 Mindsets to Reduce the Emotion of Regret

Grain Marketing Mind Game – 4 Tips for Reducing Anxiety

Existential Regret is Exhausting

It was the best of times; it was the most volatile of times

Sold too low, too fast or too slow?

The Conscious Athlete: Mental Health in Sport

Australian grain prices set to rise as Russian invasion of Ukraine disrupts global supplies

https://www.annieduke.com/

How the Covid pandemic exposed deep cracks in the Australian farm labour model

Think Agri Real Insights Episode 2, Episode 3, Episode 6 and Episode 13

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Audio

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Make your own marketing framework using the tools and templates below in conjunction with your grain advisory and production team

See Topic 1, Episode 5 for extra guidance.

Making money in times of soft pricing. Focus on profit making tasks.

Tool 1: Overview

Purpose (modify accordingly to capture your specific intent)

• Capture each decision makers risk appetite
• Create a starting point for discussion with each other advisory team and grain marketing team
• To inform type of advice that would be valuable
• To create some discipline so in low price years to protect against further downside without selling at a loss
• In high price years, take some risk off the table by taking a position while being mindful of production risk

Tool 2: Grain Selling Strategy- Variables to consider when constructing framework per crop type. This is an example only (modify to suit your needs and situation).

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Tool 3: Grain Selling Framework per crop type

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You can access a fillable copy of the table above by clicking this link here.

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You can access all audio for all topics below or via your Podcast feed.

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