Plan for a volatile market – HSBC

By FWi staff

DESPITE increasing volatility in farm incomes, forward planning is more important than ever, according to HSBC.

Steve Ellwood, head of agriculture, says he would encourage farmers to use their planning guide, Forward Planning 2001, to help them produce their own plan and understand the sensitivity of exchange rates and other factors.

Mr Ellwood predicts market prices could become even more volatile due to a continuing reduction in price support and increased exposure to exchange rate fluctuations.

The bank estimates that a change of only one pence in the value of the Pound against the Euro could alter aggregate farm income by as much as 100 million.

His advice to producers in the grain sector would be to consider pool marketing.

A carefully chosen pool manager could then spread the risk of price changes by taking advantage of grain futures and options on the commodities market.

Heavy users of feed grain, such as intensive livestock producers, could also use the markets to hedge against future price increases.

Timing of investment and expansion is crucial in the dairy industry and, with quota costs currently at a low, Mr Ellwood believes the top 25% of producers, whose unit costs are 2p below the average, should be in a good position to expand.