Markets

Tips for taking a dip in the pools

Andrew Whitelaw, Thomas Elder Markets, December 9, 2020

DURING the days of the single desk, the national pool marketed the bulk of the nation’s wheat.  The days of a regulated market are a distant and dimming memory. These days farmers have access to a wide selection of tools and mechanisms for pricing grain.

Managed programs (or pools) have been relegated to a niche marketing choice for producers in Australia. They do have a place for some producers, as they provide a route for diversifying marketing of grain.

Pool programs have been relegated to niche status, but there is still a place for them.

During the period immediately after the end of the single desk, everyone and their dog was offering a managed program.

The number of offerings has significantly declined due to reduced participation by producers, the following being the organisations currently advertising a form of pool:

  • Advantage Grain
  • CBH
  • Flexi Grain
  • GrainCorp
  • Market Check

A pool is a product in which you provide a manager with a volume of grain with no set price. The expectation would be that the manager would be able to provide a substantially higher return than marketing the grain oneself.

In other industries, they would be considered a managed investment scheme. Interestingly a product akin to a grain pool outside of this industry would be viewed as a financial product and require an AFSL.

As far as I am aware, ASIC has continued to provide an exemption for grain pools, which removes most of the barriers for entry in the pool space.

The large crop has resulted in growers considering a managed product this season, and we have fielded several requests on what they should contemplate when assessing.

How has the pool performed previously?

Past performance is not an indicator of future performance. A poor performer can improve, and a vice versa. A consistently well-performing pool does potentially point towards an operation with sound systems in place.

Ensure that you can gain access to previous data on performance.

Do you think the pool provider has the experience to operate the pool?

This is quite an obvious point but has the pool manager ran pools in the past. Do they have the experience to manage the pool to a set strategy?

What is the strategy?

Does the strategy fit with your view of the market? Does it give exposure to the time frame that you would like to be exposed?

You must understand the strategy of the pool, as you are effectively giving the manager a large chunk of your income. Conversely, if the program is simple, then why pay a manager to do what you can easily perform yourself.

Does the provider have an AFSL?

As mentioned previously, pool providers do not require an AFSL. Although an AFSL is not a requirement, it does indicate that the provider must take compliance seriously.

Payment schemes

Pools have a myriad of different payment options, ensure that you discuss these with your accountant as they can impact on your cash flow and taxation.

Compare to current market

What is the current cash market offering you? The grain provided to a managed product is effectively unpriced and can go down as well as up.

The cash price is guaranteed* and will be in your bank in X number of days (*see also insolvency risk).

 

This article was originally published on the Thomas Elder Markets website: https://www.thomaseldermarkets.com.au/

To view original article click here

 

 

 

 

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