What brokers need to know about international grain prices

Australia's farmers aren't just looking to supply local food manufacturers and consumers. For many their financial performance year-on-year will be closely tied to global commodities markets which dictate what international buyers are willing to pay for the country's produce.

It's a sign of just how integrated the global food supply is, when a dry summer in western Russia pushes up the global price of wheat, or softening Chinese demand keeps a lid on soya bean prices. Australia in particular has developed a place as a key food supplier to Asian markets like Indonesia, with shifts overseas affecting farmers much closer to home.

But if all of this sounds like it isn't relevant for brokers looking to source the right crop insurance for their clients, it might be worth thinking again.

Australia's wheat production is tipped to slump 13 per cent in the 2018/19 season

Why are commodity prices relevant for brokers?

Perhaps the most important thing for brokers to keep in mind when it comes to commodity prices is that they aren't as abstract as they first appear – they reflect the very real conditions that are affecting farmers every day and are leading to changes in supply and consumption.

It's these underlying trends that are shaping commodity prices where there's real relevance for brokers and their work with farmers. To take just one example of extreme weather, global barley prices are at the time of writing very high, with drought in Australia's eastern states and similar trends in Europe affecting the market.

A similar trend is playing out in wheat. Thanks to dry weather in the east and frosts in WA, Australia's wheat production is tipped to slump 13 per cent in the 2018/19 season according to the Australian Bureau of Agricultural and Resource Economics and Sciences. It's these extremes of hot and cold that are driving uncertainty in crop production right across Australia.

Australia's wheat production might  be crimped this year by drought and frost.Australia's wheat production might be crimped this year by drought and frost.

For crop insurance brokers, these trends will have a very real impact on their work. As production factors affect global commodity prices, they're also going to having an impact on the lives and work of the same farmers they're speaking with every day.

Understanding the risk management landscape

Ultimately, fluctuations in grain prices, or any other commodity, reflect the risks that Australian farmers are facing. Many of these root causes are risks that brokers will be familiar with, especially areas like changing production due to environmental conditions.

Faced with all of this, it's important for brokers to be having these broader conversations about risk with their clients, so they can understand how to bring together the right insurance cover for their needs.

For some farmers, it may be that dry weather is forcing them to rethink the crops they grow, shifting their focus into more drought-resistant plants that can stand up to changing conditions. Events like frosts in Western Australia may also lead farmers to look at how they can protect their farm, relying on infrastructure like greenhouses and changes in crops to offset the risk of extreme weather.

Whatever the response, brokers have a role to play to make sure their clients are protected now and into the future. While fluctuating global commodity prices might be beyond their control, they do have the scope within their work to help farmers manage some of the root causes that are driving global supply chain uncertainty.

If you want to be sure you're offering the right policies to your clients, contact the team at Primacy Underwriting. With online broking tools like Primacy's Path, they're able to offer brokers a comprehensive range of cover that can help you to deliver a great service to your clients.