PlusOne - Musings of a marketer

Having been involved in grain marketing some years ago - this headline caught my eye:

 Drought hits pre-sold crops
Grain farmers are facing a double blow this season, with market pressures adding to the severe impact of drought conditions.

In South Australia, a promising start to the season led many farmers to pre-sell their wheat crop.

But dry weather since has significantly reduced crop estimates and they will not be able to meet their obligations.

The main story does not go onto say how much of the crop had been pre-sold - but one would hope that the wheat growers had taken a risk management approach and only pre-sold part of the anticipated crop.

In my grain marketing days we were advocates of pre-selling -  but only on a percentage basis - that is - 20% of a conservative estimate of the total crop when you know the crop will come up, maybe a further 20% when you have comfort in what the season will bring. This still leaves 60% for contingencies, such as a late frost or a dry finish impacting on yield, or to take advantage of better market opportunities.

I guess the moral of the story applies to a wide range of selling scenarios for products that have an uncertain likelihood of supply.