Testimonial by Joy Angwin, Wagin, Western Australia
I met David in Kulin on March 5, 2008 at a commodity risk management and off farm investments seminar. The knowledge David imparted was unique. Here was someone who knew and explained about markets and cycles that was fascinating. We became clients, and by the 17th March had three years of forward grain marketing commenced by selling SWAPS (locking in the futures market price and currency rate). I sold all of our shares and achieved good prices for these before the market went down into September 08. With regard to grain marketing this is what has been achieved…
In 2008, we averaged a wheat price of $520 per tonne. (1225 tonnes) and canola price of $670 /T ( 500 tonnes) This was done through selling swaps, buying put options, and pricing grain at the correct time.
When selling swaps in March 2008, David explained the merit of selling forward three years at such high prices, and we undertook his advice and forward sold swaps out to 2011. Another opportunity presented in Aug 2008 to sell more swaps for 2010 and we did this. We closed out these swaps in Oct 2009. A price of $170 per tonne for 1550 tonne of wheat for 2010 has been realised.
For 2009 we have closed out put options taken in March taking a profit of $17 per tonne. These put options were to cover the extra tonnes not hedged through swaps. We closely monitored basis and closed out our swaps when basis was high. We had 375 T of swaps at $461 and 1950 T at $370. This is giving us a hedged price per tonne for 2009 of $395. Our overall average will be determined when our harvest is complete for 2009.
David has guided us very specifically with managing the risks of fluctuating input costs. When many growers were under pressure from suppliers to purchase fertiliser in late 2008, David advised to wait. We did this and were able to make significant fertiliser savings and purchase at lower prices in 2009 prior to seeding. Along with this, David suggested that we consider how we could ‘hedge’ our diesel costs with the oil price looking to rise. We purchased additional litre storage for diesel and when the oil price was lower earlier in the year, purchased forward for the year.
Our normal barley planting programme is over 500 hectares. On the 21st April 09, David advised that it was risky to grow barley in the current climate and as we couldn’t hedge it, we scaled planting back to 60ha. A very good piece of advice as prices are currently at costs of production. Part of our business plan, which has been another area David has assisted us with, is to eliminate debt, and as we change our balance sheet and manage tax, we have managed our exposure to rising interest rates by locking away debt that may not have been extinguished in the short term. We took a ten year rate for a commercial bill in 2008 and the rate is very good in comparison to current levels that far out.
This way, we can accurately budget for our interest costs, and know there is no risk of these costs increasing. In two years, though, our balance sheet is remarkably different. New options have become available to us because we know longer are burdened with the extra costs of paying back debt. David has offered ideas and advice on many aspects of our business. He has a view on subjects that is different to the way many people in the farming industry have become accustomed to. The ways he has contributed to our business and our ability to be more creative in our business is phenomenal.
Our business is more financially prepared for years of low prices and low yields which will happen. David has suggested strategies for these times ahead . We are not relying on hope as a strategy. We have attended workshops that David has held and learnt significant amounts about markets. David has managed his own company since 1990, and therefore understands the risks associated in business. His cleverness, humour and indescribable passion toward his interests make him an interesting person to know. The return on investment from the fee charged has become a little incalculable – it is massive and compounding. I believe he can make a very real contribution to the wealth of the wheat industry.
Testimonial by Simon Tiller, Esperance, Western Australia
Many farmers in the wheat industry are just starting to try and work out where they went wrong this year, they have average crops but will make no money what so ever. Rain fall and agronomy are important when it comes to growing a wheat crop but are totally useless unless you have price. Price in very simple terms is what your grain is worth and price equates back to the money that goes in to your bank account. Many growers I know aren’t even sure of their cost of production, they obviously don’t know because they are going to sell for less than it costs to produce their grain.
In our business we were no different until we stumbled across David Burton of commodity hedging company. David removed our emotions from the marketing choices that we had in front of us and repaired some bad debts leading up to 2007 harvest. I was staring down the barrel of a $600,000 loss from a hedging position that I was advised to enter into with no protection on the upside of the market. This advice was offered to me for free by none other than a grain trader who marketed the bulk of Australia s wheat up until now, David charges me for his advice but there is a very good reason for that.
David turned our hedge loss around leading up to 2007 harvest and by October 2008 he had eliminated it completely, he also advised us to sell swaps in January 08 two years forward giving us prices of over $350/ton for feed wheat in 2008/9 harvest and $520/ton for APW this coming harvest 2009/10.
David has also taught us how to manage our money and interest rates so that our business is robust and protected against drought and low prices, we now have over 1million dollars worth of off farm assets in a portfolio that is growing @ over 15% compound per annum and none of these assets include real estate. We have interest rates locked in for ten years at the low of the interest rate cycle so our cost to produce is low which gives us an edge.
Now days I sit back in my office and chuckle some times and think to myself how lucky we were to find David when we did and how unfair it is for all the wheat growers out there who haven’t the slightest clue where the market is headed. David has been so stunningly accurate in his forecasting it still surprises me after 3 years of working with him.
Going forward our business has solid plans based on David’s cycles and forecasting ability, his good work has enabled my parents to exit the business at age 52, how many farmers retire comfortably at that age? My parents superannuation is growing now at over 15% compound per annum due to David’s advice, my parents super fund manager was pretty cheap too hence you get what u pay for, Before meeting David we would have simply kept taking the advice because we didn’t know any different but now if its not working with someone or some thing we simply sack the person or cut the position, it’s a simple and unemotional move in the right direction.
My father was told by his then superannuation advisor in 2007 that a 22% compounding return on his super was not unrealistic. David then told us that that particular fund (mostly share based) would drop by at least 30% over the next three years. We then sacked the advisor and went with David’s advice and reinvested under his instructions which as mentioned has achieved 30% growth over the past 2 years – a 60% difference in yield.
All these things over time are what makes a great farming business but as I always say you are only broke because you want to be, This means that David’s advice is only as good as the person that is receiving it. Advice needs to be followed by action and your emotions will always endeavour to interrupt your actions, this is what our industry needs to over come to be great, this is what David has allowed me to overcome and it is GREAT !
Testimonial by Lachlan White, Lake Grace, Western Australia
I came across David Burton at Kulin he WA. At the time he was addressing a group of farmers about marketing and off- farm investments. During this talk he starts out with the basics of how money works and why you need to reduce debt.
Also the how countries print money and why shares are a form of money printing. How the cycles of history repeat itself, debt and why you should not have any, real estate and how it is not a good investment, grain pools and how they are run, “pools are for fools”.
The AWB and how it has ripped off the Australian grain grower, the cycles and how it effects weather, commodity prices etc.Why we should not store grain in the hope of better prices, why farmers are generally poor marketers.
This was fairly hard hitting as I could not tick any boxes on any of David Burtons opinions. For some reason I did agree with everything he said. After an interview, signing documents and sending a statement of position, the year’s budget and future production estimates we got on with business.
Now we don’t sell any wheat in the pools and do not entertain any thought of storing grain except for seed and sheep feed. No further business is done with AWB and we are on the market with anyone with the best price on the day with the right credit rating. It is great not doing deals with pools with false promises (lies). Rather than being happy with $10 or $20 above the market, we seem to be in the $100 to $200 above the pools, with cash in the bank at harvest time. Wheat proceeds 08/09 $482 per tonne net in the bank with 09/10 while not harvested yet could be $425 net.
One needs to have banks swap, broker accounts organized, and need to have the capacity to respond to consultations. I have found it best to stop what you are doing for the day and go home to the office and put all instructions into place. You need to get yourself onto a position that you can always be contacted and always check your emails twice daily. Not to be able to carry out an instruction could cost in profits. Two of my biggest sales positions had major cliff drops with 24 hrs of me taking contracts.
Grain and cotton forecasting are commodity hedging co main claim to fame but other issues around your business come into play. Input cost are also monitored eg, we have our entire knock down chemical for the next three years. Timing hedging of fuel, fertilizer and machinery purchases are all questions that you can put to David.
I do not know how to end finish this. But will finish now otherwise I could go on and on, but bottom line has never look so good in all the years of farming.
Lake Grace ,Western Australia