‘Volatility’ remains at the heart of the grain market in this new era
The risk and financial impact on your arable business continues to be dominated by world market volatility. The savage swings in weather patterns around the globe, are proving to pose a consistent threat to production in the major producing regions and affecting what historically have been stable supplies.
The key to risk management is to accept the inherent nature of price volatility. The essence of uncertainty in the agricultural market is the natural variation in supply inherent in crop markets. We cannot accurately predict crop production figures enough to maintain stable markets making it essential that growers take action to ensure a minimum price that is acceptable against their cost of production.
Markets live on a daily diet of news of events of which some are predictable and some not, but can still have an effect on the market, making your trading decision hard to assess. There are many ways to look at price risk and how you might manage it including your appetite for risk, the nature of risk, the impact on your business and what tools are available to manage it. There is no one answer as each business is different, but it is important to recognise that whatever Risk Management strategy you employ it should give you the potential to add value as well as protecting against downside. When we look at the current state of our cropping we must remember that the UK only accounts for 2.5% of world wheat production and therefore global influence and the volatility derived from it ultimately dictates our price.
Moves in price of up to £100/mt clearly demonstrate the effects of such creating a market that can very quickly become ‘One Hot Potato’. Crop Marketing and Risk Management advice form part of Agrii’s portfolio in providing marketing tools that you can use to manage such risk and in some cases linked to exclusive buyback contracts. When employing a strategy to manage risk we would advocate that consideration in adding value where possible also be a priority and not just protecting price.
By combining these two aspects you can potentially realise additional income per hectare without incurring extra production costs. Contracts that offer Guaranteed Minimum Price, Underpinned Premiums & Min – Max premiums along with niche market contracts for crops such as Vistive HO, LLRape offering premium over and above conventional rape price with bonuses, Milling Wheat for specific markets, Malting Barley, Linseed and Pulse contracts. In summary, your decision making in a volatile environment requires business planning and gaining as much of an understanding of the underlying market forces as possible. Combine this with the tools and contracts available to you and this will minimise your risk and exposure considerably.
At Agrii we have strategic partnerships and direct links with end consumers and new developing markets. Why not let us help alongside your Agrii agronomist to give you good solid advice to the benefit of your farm business.
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