24 May 2002

No future for potatoes

THE London potato futures market is to cease trading permanently, depriving the industry of a potentially important form of risk management and price transparency.

Ian Dudden, director of commodity products at the London International Financial Futures and Options Exchange (LIFFE) blamed the decision, announced last Thursday (May 15), on a lack of trade support.

"We have seen very low volumes on that contract for some time," he told farmers weekly. "It simply isnt viable."

Discussions have been under way for 18 months over the potential to change to a cash settlement contract instead of one requiring physical delivery of potatoes. This would make the futures a lot more attractive to traders, and LIFFE reportedly received over 150 letters of support for the change.

"But after very careful analysis of the potential support for the change we still felt that it was not viable," said Mr Dudden. "Judging by the levels of trading activity we would hope this will have little or no impact on the industry."

But Rob Burrow, market information manager at the British Potato Council, said the decision was "very disappointing." "It is another market opportunity for our growers lost." Although the futures did not have a great effect on physical prices, they acted as a transparent indicator of forward values, as well as a valuable hedging tool, he added.

John Bull, financial director of broker BDF Commodities, reckoned there were opportunities to be had, and was frustrated the decision had taken so long.

"Now we have got the no from them we can go ahead and approach other platforms." Many other parties were interested in running the futures on a cash settlement basis, so discussions could now begin in earnest, he said. &#42