27 February 1998

CONTRACTS TO STAY A LIMITED OPTION

Grain growers are regularly

urged to get closer to their

customers and produce to

contract. What is the scope

for them to respond?

Andrew Blake investigates

DO not sow unless you are assured of a market. That is an increasingly familiar call from merchants and end users. But opportunities for contract-growing seem destined to remain limited.

Contracts have long satisfied at least part of the markets for malting barley and milling wheat as well as seed. Indeed up to half maltsters needs are met this way, according to one estimate.

But when unfavourable weather coincides with economic storms hitting users, cynicism over the value of contracts is never far away. Rejections through barley skinning last harvest, just when maltsters were going through a rough financial patch, reinforced that view. "Some of our members have become very disillusioned with malting contracts," admits NFU legal adviser Richard Vidal.

"It was unfortunate that skinning like never before occurred when maltsters were overbought," adds Roger Woodley, grain operations manager at Hugh Baird & Sons.

Rebuilding trust

Views differ on the way to rebuild the trust that was lost. But however successful the restoration of producer/user relationships, the temptation of potentially cheaper grain supplies from abroad and on the open market seems certain to limit availability of UK contracts.

The question for users is how much to contract. Maltsters more immediate post-harvest needs mean they traditionally obtain more this way than millers.

"I have been berated for not going more the way of the maltsters," says Peter Jones, Rank Hovis wheat director. "But we are very different industries. I have always thought there could be a problem with the malting side."

His main concern is that growers understand the need for a proper balance between milling and feed varieties. Getting it wrong inevitably affects premiums.

Contracts can remove some of the uncertainty caused by big swings in variety types grown, says Allied Mills wheat director Charles Fillingham. "We have gone from feast to famine and back to feast." The difficulty for companies issuing fixed premium contracts is predicting such moves 18 months ahead, he says.

On its way, but will it reach the intended customer? Growing grain on contract is never risk free, but it can open the door to wider markets.

GRAIN CONTRACTS

&#8226 Markets restrict scope.

&#8226 Weather worries.

&#8226 Risk-sharing options?

&#8226 Independent overseers?

&#8226 NFU vetting service.