Should growers lock in prices now?
A rising grain market is forcing more grain farmers to consider forward price contracts for 2011 harvest
Published 01/02/2011 | 05:00
Grain continues to trade stronger than ever, with prices on London's LIFFE market for wheat delivered in May hitting €240/t last week. Traders suggest that this may not even be the peak, with many believing that markets could strengthen by another €30-40/t for grain currently in store.
This will bring prices to exactly the same point they reached in the 2007-2008 season, before they crashed to little more than €100/t in a matter of weeks. Millions of euro were wiped off the stocks of Irish grain and many operators suddenly found themselves facing a cash-flow crisis instead of an expected bonanza.
Many farmers were left ruing the fact that they didn't sell more grain at the time when the price was rising. They are now wondering if they should sell some or most of their grain in advance of the harvest instead of risking missing out on high prices all over again.
To do this, they will need to avail of forward price contracts. The natural inclination for most farmers is to shy away from these because they risk selling at a price lower than what the market eventually reaches. But a significant minority have concluded that they cannot afford to take their chances on which way price will go in the future if a big enough drop has the capacity to wipe them out completely.
This is the new paradigm that Irish tillage growers face as the impact of a free-trade market for EU farm commodities begins to kick in. Here's the views of two inidividuals on the benefits of forward contracts.