Time to consider forward purchase of winter feed
Published 09/07/2014 | 02:30
As in previous years I am advising clients that now is the time to look at winter feed budgets. An immediate task is to look at the option of forward purchasing.
While this practice carries some risks due to fluctuating commodity prices, in most cases it can deliver significantly lower winter feed costs while also helping cash flow during the winter feeding season.
The forward buying process is simple. When the quantities of the feed required are determined and price is agreed, a contract is issued to the purchaser – in this case you.
This should outline the amount of product to be delivered, the delivery dates, price and specification of the product. In most instances, the price agreed will be on an ex-port basis, so you need to factor in transport costs. These can vary greatly depending on load size, distance travelled and method of delivery (tipped or blown).
As with any global commodity, livestock feed prices are influenced by supply and demand.
Forward markets trade on expectation of harvest yield, and with successful plantings and positive weather forecasts, prices are quite low. As a buyer you are always trying to buy at the bottom of the market.
However, it is important to consider where we are at compared to this time last year or even five years ago. While waiting for a further prices drop, external factors such as oil price, currencies, investment funds and unforeseeable political developments can drive prices upwards in an instant.