Buyers far outnumber sellers in the sugar beet outgoers’ market, with approved sellers’ contract tonnage entitlement (CTE) changing hands at £30/t. British Sugar is adding 50% bonus tonnage to each transaction to encourage trade.
Lincolnshire quota agent DCFM traded more than 12,000t at this level between Monday and Thursday last week. Demand was enormous, said the firm’s Duncan Clark. Many potential sellers had not yet come forward because they were under the impression that their quota was worth more like £10 to £15/t.
There had been some confusion when the outgoers’ market opened and sellers needed to be clear about the basis for prices quoted, he warned. Only the original CTE is being traded. Sellers are receiving £30/t for it but because of the extra 50% allocation, buyers are effectively getting quota for £20/t.
Outgoers will also receive between £5 and £15/t in compensation from British Sugar. Despite the financial incentive being attractive, some marginal growers would stick with beet whatever happened, said Mr Clark.
It is crucial for any tenants considering selling to make sure that this does not put them in breach of their agreements, say advisors, while tenants wanting to buy may have trouble raising the finance for large transactions.
Ed Blundy from Brown & Co‘s King’s Lynn office said while there was a great deal of interest in beet quota and deals were being completed, there was also nervousness among potential buyers as to the likely success of the outgoers’ scheme. Many were reluctant to write a big cheque to buy quota at this stage in case quota became available more cheaply or for free later on.
When cereal prices were high in 2008, sugar beet was unpopular and British Sugar was giving away contract tonnage. A year ago, quota was changing hands for £6 to £10/t.
The sugar beet price for 2011 permanent contract tonnage is likely to be around £24/t under a new formula based on a cost model for a 67.78t/ha (27.4t/acre) crop, adjusted for currency fluctuations and a bonus based on wheat prices.
“Buyers need to take a view on future beet prices, which we think shouldn’t fall significantly below £24/t as British Sugar is well aware of production costs and competition from other crops,” said Mr Blundy.
Total cost of beet production for Brown & Co’s farmer clients is around £1500/ha (£607/acre) before any profit, which is £22.30/tonne on a 67t/ha (27t/acre) crop.
All outgoer trades must be completed by 13 August, the date by which growers have to sign up for contact tonnage for the 2011 crop. No decision is being made until September on availability of any temporary tonnage for 2011 but it is expected that if the outgoers scheme is successful there will not be any temporary allocations.