7 August 1998

More grain pours in as popularity grows

More farmers than ever are

using grain pools to sell

their produce. Has their

confidence in traders been

rewarded? Robert Harris

asked four leading

merchants for their results

POOL marketing of grain, once largely ignored by farmers, is gaining in popularity, according to leading merchants, who report large rises in tonnage this season.

Many farmers have found they can no longer match the results obtained by traders in a market showing greater and more frequent volatility, says Richard Whitlock, wheat director at Sidney C Banks.

"Since monetary compensatory amounts were removed, the market has been totally at the behest of currency movements. Intervention support has also been reduced, so profits are no longer guaranteed. Farmers no longer have the time to make the instant decisions which are vital in something as uncertain as the grain market."

In the marketing year just finished, Banks handled just under 240,000t of combinable crops, three times the previous years total pool. This season, over 460,000t of feed and milling wheat, feed barley and oilseed rape have been signed up.

Contracts are offered for four periods: July-September, October-December, January-March and April-June. In the 1997/98 season, the first two pools paid out an average of £81.75 and £83.44/t for feed wheat (basis 72kg/hl), respectively, net of haulage and a £2 marketing fee. The last two made £82.48 and £84.63/t. All prices exceeded the Home-Grown Cereals Authority spot price, by £3.55/t at the start of the season and £11.70/t for the final marketing period, notes Mr Whitlock.

Individual farm prices vary according to location and crop quality. For the April-June period, this produced a spread of £4.40/t around the average.

Achieving these prices is the result of extensive research, says Mr Whitlock. This allows marketing decisions to be based not on sentiment, but on fundamental factors, such as crop area and variety mix, global yield and quality forecasts, export patterns and currency change.

Armed with that information, the company hit the market hard early in the past two seasons, when a lack of farm sales lifted prices. In the 1996/97 marketing year, all the wheat, including the April-June wheat pool, was sold by October 1996. In the marketing year just finished, most tonnage was cleared by that date, before a strengthening £, weak exports and variable quality further pressured prices.

"We caught the top third of the market. To have beaten our lowest price in 1997/98, a farmer would have had to have sold all his wheat by the first week of November," he says.

Despite the fact that values remain severely depressed, Mr Whitlock has been busy selling this seasons crop, spurred on by the bearish outlook. Over half the harvest pool has been sold, and a quarter to a third of the tonnage in later ones.

"We aggressively sold on the new crop market. Our strategy has been proved correct, as prices have continued to slide. So far, we are between £4 and £9 above the HGCA spot price for the period," he says.

"There is still potential for a big UK crop, perhaps in excess of 16m tonnes. We also know that the French are heading for a 37.5m-tonne wheat crop, an increase greater than the UKs exportable surplus."

But reports of low proteins offer some hope, given the increase in quality wheat plantings this side of the channel. More UK wheat could also be eligible for intervention, notes Mr Whitlock.

World prices, though, show little sign of lifting. Stocks have risen to a more comfortable 21% of annual use, and with little change in demand, this years forecast 600m-tonne world wheat crop looks set to add to that reserve.

Continued inflationary pressure means that the £ is also likely to stay strong, pressuring exports, he adds.

Other merchants also report more interest in group marketing schemes. Throughput of Dalgetys national managed fund, fully launched last year, has risen 25% this season, and the companys various pool schemes have increased 15%, says the companys Gary Hutchings.

Last season, the managed fund achieved £90.25/t in the October-December period for feed wheat net of haulage, premiums and a 5% commission charge (this funds purchases of options to secure a minimum price).

Price climbed by 50p/t for the January-March period, and by the same margin again for April-June movement. The companys pool schemes realised values in the mid-£80s/t, says Mr Hutchings.

Cargill has increased the number of grain packages on offer to cope with demand. The managed fund realised a price of £88-93/t for feed wheat net of costs for the April-June period, depending on location and time of joining, and about £3/t less for January-March.

User numbers are being kept to a manageable level, says marketing manager Andy Bury. Other options, including a flat fee-based scheme and a commission-based scheme, have been opened.

Like banks, Allied Grain operates a straight pool system. Although unwilling to release actual figures, group managing director Ian Douglas reports that all pools beat the HGCA spot price. "Our uptake has virtually doubled this season, which speaks for itself."

Direct price comparisons between schemes can be misleading, he adds. "You have to be very careful to compare like with like. It depends on how long the pool is open for marketing, the pool period itself, and premiums and payment date." &#42

Some merchants report a doubling of tonnage in this seasons pools.

BANKS POOL 1998/99

&#8226 Minimum commitment — 100t.

&#8226 Four movement periods, with advance payments by agreement.

&#8226 Marketing fee — £2.50/t for cereals, 2.5% for oilseed rape.

&#8226 Bonuses for quality and location.

&#8226 Payment — 28 days after pool movement period closes.