Planning forward trade
Published 01/02/2011 | 10:56
Four years ago there was no grain forward traded by farmers in Ireland. Even in the 2007-2008 season, the volumes were minimal. Last year, approximately 150,000t of grain was forward sold by Irish grain men. This still accounts for less than 10pc of the total amount of grain produced in Ireland. It's possible that we could eventually head the same way as Britain, where 30-40pc of the total crop is forward traded.
Deals are being done from the minute that farmers plant the crop, although some guys are looking even further forward. Generally, 10-20pc is about the maximum that most guys tend to forward sell. With the price still rising strongly, growers are getting more bullish. So even though contracts of over €200/t were reportedly on offer this week, which is at least €30/t better than what was being offered last November, farmers are holding out -- even the guys that were happy to lock in at €170 last November. This is really only human nature.
While there's a possibility of old crop [in stores] increasing further, at current price levels, demand for wheat is very slow as the market tends to switch more to cheaper alternatives like corn and barley. In addition, there's so much uncertainty that anything could happen. The markets react violently to any food shortage, whether it is perceived or real.
Russia's absence from the market is under-pinning prices now. Before the Russians were out of the equation, you couldn't give away wheat for €140/t. There's less optimism about further price rises for new crop [in the field].
My advice for farmers is:
- Do your costings. You will need to forward buy some inputs, such as fertiliser, to be able to accurately predict what your costs are. This will allow you to set a price you are willing to sell at.
- Avoid setting target prices since 75pc of sellers will have similar targets and they will be harder to secure.
- Have a marketing plan. This means that you've figured out when you need to sell, the amount you'll have and the quality it'll be.