How arable farmers can manage volatility

Cassian Battistini, manager of Simpsons Malt’s Grain Trading division, looks at the year ahead and how arable farmers can manage volatility.

Farmers have had to deal with increased volatility of agricultural commodity prices in recent years, which has presented new challenges for farm business management strategies and techniques. The markets are constantly buffeted by a variety of domestic and international factors that determine achievable prices on any given day, including weather, geopolitical events, exchange rates, freight markets, oil prices and government trade policy to name a few.

Historically, grain prices were at their lowest at harvest and those growers who dried and stored grain were able to achieve better prices by selling at a later date. However, this strategy is no longer a given and there is no guarantee of higher prices later in the season, especially for markets where imports from countries whose harvest periods differ from ours are available.

Growers have therefore been forced to consider their options on how best to handle these price fluctuations, weigh up the risks involved with different marketing strategies and make decisions that best suit their risk profile and cash flow requirements. These strategies will ultimately have a significant influence on the profitability of their business.

We believe that 2018 crop wheat has the potential to be a particularly volatile year. Although the winter crops have generally gone into the ground well and early expectations are for a slight reduction in the size of the UK harvest, there are a great number of unknown factors still to be realised. Of particular importance will be the ongoing Brexit discussions, which will continue to influence exchange rates and affect the UK’s position as either a net importer or exporter of wheat next season. Operation rates at the country’s two major bioethanol plants, Ensus and Vivergo, will play a key role in determining both the UK’s overall demand and geographic spread of its wheat requirements, as will the decisions by various distilleries whether to run on wheat or maize for the duration of the season. With weather conditions during the Spring and harvest periods set to play their usual key roles in determining overall harvest quality and yields, and carry-over stocks from the current season likely to be low, new crop market conditions are likely to be one of the most unpredictable and potentially volatile in recent years.

Marketing Pools

Given the high degree of uncertainty surrounding the wheat crop market, a sensible, relatively low-risk management option to get exposure to the market is via a pool. The benefits of marketing pools include deciding on when you would like your material to be moved, knowing exactly when you are going to get paid and the peace of mind of having a dedicated marketing expert to ensure that your returns are maximised across a series of sales transactions over a period of time. The ability to combine volumes with other growers also helps to reduce price volatility and allows the marketing agent to make forward sales using the futures market in advance of the marketing period order to capture additional value on the grower’s behalf.

MSP’s well-established wheat marketing pool has an excellent track record with a large number of repeat growers that have remained loyal to the pool for a number of years. Thanks to our strong relationship with the flour mills, MSP is also able to maximise the value of biscuit and milling wheat grades by ensuring that such parcels are identified at harvest and marketed accordingly. Whilst our 2018 wheat pool is now closed, there is still time to join our 2019 pool, which has the below closure dates:

Autumn (Q4) Pool: October – December 2019. Closure date: End September 2018

Spring (Q1) Pool: January – March 2020. Closure date: End December 2018

Summer (Q2) Pool: April – June 2020. Closure date: End March 2019

Please contact your farm trader on 01289 333342 to review our historic price track record and register your commitment, or to discuss the marketing options most suitable to your business.