Prepare for more grain market volatility

Cereal producers need to prepare for further volatility and increased risk with margins being squeezed between high costs and low prices.

An unusual start to the year meant it was almost impossible to predict what would happen to grain prices, HGCA senior analyst Jack Watts told delegates at the levy bodies’ Grain Market Outlook Conference.

The three-year trend for prices to rise in the lead up to harvest and fall before planting has been broken in 2013, with prices falling nearly £40/t since last November.

Higher fertiliser prices last year had also heavily impacted on farmers’ costs, increasing working capital requirements and risks.

Cereal farmers needed to concentrate on building resilience to ensure their businesses survive uncertainty and compete with foreign imports, said Andersons’ partner Graham Redman.

According to the consultancy firm’s Farm Business Survey, 43% of cereal farms’ profit comes from agriculture, with 39% from single farm payment, 12% from agri-environment schemes and 6% from diversification.

This caused some cereal farmers to be complacent because, with agriculture making up less than half of their profit, they had managed to survive market volatility in the past, he said.

However, with the new CAP coming into effect next year, farmers may not be able to rely as much on large SPS and agri-environment scheme payments, he added.

While there were some disadvantages to becoming more resilient – such as increased costs, compromising in some areas of the business and becoming more vulnerable to other hazards – a resilient farmer would stay in business.

Being less reliant on one crop to spread risk was one example of how a business could be made more resilient, he said, but it would mean extra costs and could lead to more hazards as the business became more complex.

Even small changes could help businesses compete, said Mr Redman.

The UK was predicted to be a net importer of wheat for the second year running – keeping supply going to the consumer with foreign wheat was crucial when there was a shortage of British wheat, but research showed consumers preferred British wheat, he said, making it important for producers to meet buyers’ requirements.

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