Managing market volatility is as important as growing a good crop when it comes to securing the best OSR margins, Gleadell trading manager Jonathan Lane told a recent conference organised by grain merchant Gleadell and crop production specialist Hutchinsons.
He left the audience in no doubt about how much volatility they faced. In each of the past eight years the price of the August oilseed rape contract on the MATIF futures exchange had swung, from top to bottom, by an average of €135/t.
“These swings are huge,” he said. “It shows how much markets have changed. When I started in this business 15 years ago a 50p or £1/t move in a day was quite a big thing. It is nothing now – we sometimes see markets move £10-15/t.
“The amount of risk and volatility that farmers are exposed to has changed significantly. We need to think about how we change our plans to manage these changing markets.”
Gleadell’s minimum price oilseed rape contract would help growers manage extreme volatility, he said. “It allows you to lock into a minimum base price, to protect against any falls in the market, but capture any upside move over the period of the contract.
“It uses the MATIF futures as a reference point, which is clearly visible and transparent.
“How does it work? Growers sell rapeseed for harvest movement. The day it is sold, a reference price is set on the MATIF market – this keeps the grower in the market and gives them a second opportunity to take advantage of any price increase after harvest.
“If the price the grower fixes on his Matif contract price is higher than the set price, the farmer receives the difference. If the price goes down, the farmer simply receives the price he sold his crop at.”
The scheme costs £8-10/t. Some farmers might question why they should pay to sell seed, said Mr Lane, but given last year’s market slide and the extreme price movements of the past few years, he believed the equivalent of £1.5/t/month over six months was a fair price to pay for peace of mind and to stay in the market.