Portfolios need upkeep too
Over the past week I had the pleasure of travelling with the Ten Tigers Grain Marketing Group through the Wheatbelt and was amazed by the complexities that modern farmers face.
Beyond the daily grind of running the farm, a farmer has to multi-task across a number of areas, including grain marketing, soil management and ever advancing agronomy technologies to remain competitive in a global market.
From the many conversations I had over a coffee or a beer I came to the realisation that it was hard enough for farmers to time manage their farming commitments let alone find time to attend to their share portfolios.
Many farmers I spoke with had just put them aside with a 'sit and wait' approach.
I found this a bit concerning to hear, as equity markets along with farming, have changed significantly over the past 20 years.
I know from these meetings that farmers are not employing the same strategies on the land as they did back then. So why would it be any different with shares?
To make another comparison, today farmers use grain futures to pre-sell product to increase certainly and hopefully increase returns.
In equity markets, we can use similar derivatives over many well known shares you may currently own, to generate additional income.
I need to say this is only one strategy, but it is one that is well suited to a sideways trending share market.
On the share market it seems Glencore has locked in the takeover of Viterra which gives it exposure to the upcoming deregulation of the Canadian wheat markets and obviously a good entry into the Australian market.
Although the bid has been made by Glencore it has agreed to on sell part of Viterra's assets to Canadian company Agrium and privately owned Richardson International.
The question for farmers is, will there be any impact on the WA grain markets liquidity after basically one of the buyers have been removed.
Last week we had more evidence of a slowdown in Chinese economic growth, with a key manufacturing index hitting a four-month low.
This had a negative impact on hard commodity stocks and the Australian dollar.
What was more interesting for the agricultural sector was CBH Group's comments saying that there is increased demand for wheat from the Chinese.
Agricultural lender Rabobank supported this view by saying that it expects Australian wheat exports to China to double to 1.2 million metric tons in the current marketing year ending September 30, as prices remain competitive, making Australian feed wheat a viable substitute for U.S. corn.
Finally, I must send a special thank you to Ten Tiger's Jerome Critch and Chris Tonkin, Agrarian's Craig Topman and Paul McKenzie, and Oil Tech's Bill Mitchell who not only filled in 20 years of farming history and technical development but made sure the poor little country come city boy got through the week without being swallowed up by the great outdoors.
_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _
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