Managing Grain Price Volatility
Selling grain over the last few years has become a lot more difficult with massive fluctuations in price over a selling period. At the Teagasc National Tillage Conference, which is taking place in Carlow today, Thursday, 27 January, grain growers heard how volatile world grain markets are forcing more farmers to use risk management strategies to minimise the impact of price fluctuations on their businesses.
John Spink, Head of Crop Science Department, Teagasc said: "Irish farmers have tended to sell most grain "green" off the combine, which has left them vulnerable to price volatility. This year is the first year where the opportunity to sell grain in advance of harvest has been more widely available to all growers."
Speaking at the conference Mark Wood, a farm manager from the UK outlined how he manages the risk of prices fluctuating. "I try to manage the market risks, I may not hit the market highs with all my grain, but I don’t end up at the market lows. My average is what matters and over the last seven years I have been in the top half of the market average and have been able to reinvest in my business."
"I try to use the full marketing period. The trading period for each year’s crop is open for nearly three years but nearly all the grain is traded in the final year once the crop is harvested," he said.
Mark Wood adopts a different policy. He sells one quarter of the anticipated harvest before the crop is planted, one quarter around the time of planting when the crop areas are confirmed. One quarter is sold through the growing season right up to harvest and the final quarter is sold post harvest, once the harvest is safely in store and the exact quantise are know.
"For harvest 2011, I have already sold half of my wheat and 40 per cent of oilseed rape. The average price on wheat is stg£141 per tonne and stg£312 per tonne for oilseed rape," he said.
The largest costs on cereal farms are machinery costs and Teagasc researcher Dermot Forristal said that the National Farm Survey data indicates that machinery costs on tillage farms are high at €357 per hectare, representing 44 per cent of production costs. He pointed out that similar survey data from the UK indicates lower machinery costs on UK farms. Research carried out as part of the crops research programme in Oak Park, indicates a high range of machinery costs on farms, highlighting the scope for cost savings and the importance of getting the mechanisation strategy right for individual farms.