More being forced into forward pricing
Published 18/01/2011 | 05:00
Meathman Eddie O'Donnell manages 4,000 cows on three different farms based around Berne in the US cornbelt state of Indianna. With little land other than that taken up by the sheds, O'Donnell's Irish Acres operation is almost totally reliant on bought in feed.
"Availing of forward price contracts has been standard practice in the grain business here for many years," he says.
"Grain farmers often sell a portion of their up-coming harvest on a weekly basis.
"A lot of guys would sell at least 50pc of their produce long before the harvest ever starts.
"In the last 10 years, dairy farmers are starting to do more forward contracts with their processors. For example, Dairy Farmers of America, which is one of the biggest dairy processors here, will organise to forward sell any amount of your milk supply whenever you want. They don't charge the farmer the brokerage fees until the milk is actually delivered.
"Most of the milk here goes into Class III, which is mostly used for cheese making. The demand for this stream is the big driver of milk prices over here. The summertime is the worst time for milk price, purely because in the hotter months, people consume less dairy products like cheese.
"We're getting $19 per 100lbs of milk (approximately €0.33/l) which isn't great with the way grain prices have gone. Grain has effectively doubled in the last four months.
"Up to about two years ago, we were able to buy 80pc of our feed requirements off the combine and pay a premium for storage. But then grain prices shot up and volatility has really kicked in.