Avoid late grain selling – HGCA
By Robert Harris
SELLING grain late in the season, once almost a guarantee of better profits, has recently been a good way of losing them, according to the Home-Grown Cereals Authority.
Forward selling or options should now be uppermost in growers minds.
Figures show selling grain in March, rather than September, resulted in a loss of 15% on wheat and 11% on barley this season, including interest charges. In the same period last season, the net loss was 11% and 9%, respectively.
In the 15 years before that, wheat produced a net return of 1.4%, barley almost twice that.
HGCAs market information suggests storage may not cover interest expenses in 1998/99. If sterling continues to rise, it will increase losses, but a weakening £ will benefit those selling later. Growers can either sell forward if they believe little change will take place, or hedge their bets by using options.
Selling physical grain for harvest or autumn movement and buying a call option for May is a good bet, says the HGCAs Gerald Mason.
That gives the grower the right to buy grain at a set price any time between purchase and mid-April. The option price will be higher than the grain just sold, but usually only by £1-£2/t above the monthly carry, he explains.
The physical transaction never occurs. If grain prices rise, the option is sold at profit less the £3-£5/t cost. If the price falls, the grower only loses the cost of the option. *