I have to admit I am a bit of a nerd when it comes to thinking about finance and how it fits into different trading systems. One of my favourite subjects to mull over is hay trading – it’s a tricky market if you take the time to think about it. I find it interesting enough to write three articles on the subject, so if your life is revolving around fodder right now and you have a spare few minutes read on…
I can’t think of any other Ag commodity that is so boom or bust. Unlike livestock that tends to feed on confidence across the supply chain, the hay market does its greatest volumes at a time when cash is hard to come by and confidence in generating profit for the businesses needing the product is at a low point. For many consumers of hay, when the need arises it often hits quickly and tends to coincide with periods of reduced cash flow, especially if you happen to be a dairy farmer with milk production at a low point or a livestock producer seeking weight gain with pasture growth at a low point.
For hay traders, it can switch from “when will I get the next parcel sold” to “where will I find the next parcel to sell”, all in the space of a month or two. Maybe the hardest bit to come to grips with is how this commodity can be red hot one minute, then bang, big rain arrives and demand can dry up overnight leaving you high and dry if you have brought in at a high price and then have no way to move the stock on.
These factors create some interesting dynamics. For a start, many of the purchases made from hay suppliers will be made by customers who are strapped for cash but have plenty of assets/product to sell when the time is right a few months down the track. While many suppliers of hay are relying upon payment from their customer to enable them to pay for the stock they have purchased off a grower to avoid holding high volumes of stock. As a result many suppliers of hay request payment upfront to remove the possibility of not having the cash to pay their supplier or to negate the chance of a bad debt.
So when you put it together you have hay suppliers who hold limited stock who are looking to sell high volumes of fodder at a time when their customers have limited cash reserves.
Seems to me that the tension between hay supply and cash reserves makes the trade of hay a lot more difficult than many of the other purchases that play out for farmers over the course of a season.
How has this situation played out for you over the past few months? If you’re a seller of hay what are key issues getting in the way of increasing the volume of hay you supply to farmers? If you’re a consumer of hay, what makes life difficult or really easy for you when it comes to getting access to the hay supplies you need?
Let me know if you have thoughts on the above via email on kelseym@delaypay.com.au or just call me on 0409 117 730 for a chat.
For the next instalment in this series I’ll dive a little deeper into financial impacts on both buyers and sellers of hay, so keep an eye out over the next couple of weeks for part 2.
Look forward to hearing from you!
Kelsey