29 May 1998

MARKETING? GET AGUIDE FIRST…

Grain markets have become

a jungle, with dramatic

price movements and strict

specifications to catch out

the unwary. Independent

markets analyst Jeremy Cole

of Agricole argues the case

for using outside help

IF YOU want to make the most of your grain marketing opportunities it will pay to use a guide who knows his way around the jungle that is the world grain trade.

Gone are the days of a market with a floor and a price rise each month of at least a £ a tonne.

Todays grain market has become fickle indeed. Decisions made one day can seem wrong just a few weeks later, with severe cost implications.

In an ideal world everyone would have perfect information and the market would be in equilibrium. But UK farmers now operate within a global market, with many factors needing consideration before each selling decision.

Farmers are required to produce crops to ever higher standards and use professional advisers to finance and grow their crop. Yet the selling of these crops is still largely done on an ad hoc basis with little or no help.

Unfortunately, this is not now good enough as the past few years market swings of +/-30% show (see graph).

Instability factors

Market instability stems from many factors. Supply, demand and weather are obvious ones. But even these now need to be looked at in a UK, EU and world context. Others include currency movements (see graph), politics, trade barriers/agreements, competition from other crops, stocks and world volume of trade.

The good news is that help is available from an adapting supply industry. Merchants, co-ops, consultants, land agents and independent grain advisers/brokers are all on hand to help.

Pools and managed funds have developed over the past few years, mainly run by merchants and co-ops. These guarantee tonnage and a higher margin than normal. But with little farmer participation once grain is committed, they are not suited to all producers.

Independent advisers and brokers, who use options as a risk management tool, and timely accurate marketing information and prices still involve the farmer in the final decision making process. Which route you choose depends on your need for control. In any event, choose a source of advice that you trust.

You need more than a crystal

ball to survive the sort of volatile grain markets caused by currency fluctuations (above), advises independent analyst Jeremy Cole.