With the silly season (harvest) in full swing, we are seeing more activity and complexity in commodity values and supply chains. The natural focus of both buyer and seller is generally around price. This is normal; however, price alone may not reflect the best overall deal for a business. Industry participants should focus on both price as well as terms. As a Grain Trade Australia arbitrator, the relationship between price and terms is clear: a contract is formed at the point when, verbally, you have agreement on both price and terms. Paperwork should then be exchanged to confirm alignment of both price and terms. Contracts become frustrated more often when the understanding of terms is misaligned.
Increased complexity or complicated terms represent risk. Increased risk should be reflected in price. Payment terms are a classic example where risk should be reflected in the price. The best way to manage insolvency risk is to simply shorten payment terms and be paid quicker. If a buyer has 30-day terms at, say, $600/mt compared with another buyer at 7 days at, say, $597, the lower price may well reflect a better overall risk profile for the seller.
Delivery is another major factor and often a source of frustration with the execution of a contract. Buyers attempting to meet shipping and/or packing deadlines often conflict with farmers’ harvest-driven logistics. Across the industry, “Buyer’s Call” is a grossly misunderstood and misrepresented term. Buyer’s Call is defined within the Grain Trade Australia trade rules. The term technically has a default 15 days’ notice of delivery, which is almost never applied. Buyer’s Call is not ex-header. That said, a Buyer’s Call and a prompt-delivered contract may be priced higher than a December-delivered silo contract. A $10 per mt higher price may not commercially compensate the seller for the additional work as well as the capital investment in storage and transport infrastructure. Individual sellers will value this differently, and that’s okay.
With the 2025/26 harvest running late and weather currently playing a significant factor, the delivery period term on a contract will likely cause anxiety. A simple November/December delivery window may seem okay until we get weather-related harvest delays. On lentils, we have already experienced weekly values for November based on short-term execution demand. Sellers then often confuse the current price bids for the market. The price is reflecting the short-term squeeze for a nearby or prompt delivery window.
If we then expand this into wheat and the “bah humbug” Christmas period, we may well see a market price for December wheat that is higher than for January wheat. A change in terms needs to be anticipated and negotiated. No doubt we will be negotiating some contracted terms as we run into late December.
This weather-driven market is when Pinion Advisory grain marketing consultants can add significant value to their clients’ risk-reward return. We can achieve this by developing a deep understanding of individual client requirements, then developing commodity selling strategies that address both terms and price.
Chris Heinjus
Technical Director
Commodity Risk Management