Cereals 2009: Get a grip on managing volatility

The spikes in fuel, fertiliser and commodity prices over the past 12-18 months have highlighted the need for farmers to get a better grip on managing volatility, says Velcourt.

The firm says the average farm gross margin at Vine Farm – host of this year’s Cereals event – has varied from £300/ha to £700/ha over the past decade, illustrating the increasing vulnerability of farm profits to market fluctuations and the weather, even on large, well-managed units.

“The fertiliser situation caught a lot of people out and really showed us how much things can change,” Velcourt’s Adrian Hatchett said. “We’re not just talking about the odd penny per litre or couple of extra pounds per tonne now; it’s all about big price swings that have a huge impact on individual businesses.”

Whether buying inputs or selling grain, the key thing is not to put all your eggs in one basket, he says. “There’s no one answer for all farms, but it’s about how you manage this volatility. You have to take a view on the day and decide whether you can make a profit at a particular price. If you can, it’s worth selling (or buying) a proportion of your requirements; it’s no use always trying to exactly hit the top (or bottom) of the market.”

How Velcourt manages volatility

Fertiliser Individual farm managers decide on the amount and type of fertiliser required (eg, solid, liquid, urea, etc), but bulk buying is done centrally. Some is bought early, some later in the season depending on prices at the time. Bulk buying provides some price savings, but does not shelter from severe fluctuations witnessed last year.

Fuel Velcourt farms left to arrange their own fuel pbuying urchasing, but the company is said to be looking at ways of sourcing fuel for all its farms at a fixed price.

Crop prices Crop marketing for most Velcourt farms is outsourced to Velcourt Marketing Services, managed by Openfield. The VMS team varies the proportion sold forward or on the day, depending on market conditions each year. Even using this pooling system, average feed wheat prices varied from £100/t to £150/t last year.