Doing pools can pay big dividends
Doing pools can pay big dividends
By Suzie Horne
WITH a big wheat crop in the ground and prices on the floor, some grain pools are seeing a rise in commitment from farmers even above the record levels of 2000, when the last big wheat area made growers think hard about reducing their risk.
The space in co-ops central grain stores is generally fully committed. So, it is in on-farm pool grain that big fluctuations in tonnage have been seen in recent years, and especially since the launch of merchant pools.
This season saw a drop in the use of pools on the back of a smaller wheat area and the expectation of higher prices.
At Grainfarmers, national pools development manager Rob Sanderson says the total tonnage committed to pools for harvest 2002 is up 20% on 2000. Most of this increase is in the 0.5m tonnes of grain stored on farm, but committed to be marketed through the co-op.
Grainfarmers trades more than 2m tonnes of first hand grain, with about 40% of this going through pools.
"The on-farm pool is an annual commitment and if we do not perform, they can walk away," says Mr Sanderson.
"I have always told our members we are not going to hit the top of the market with everything, but we must return an exceptionally good average in the top 20% band year after year."
Direct comparison of pool pricing is difficult, as payment dates and other terms vary, as does the method of arriving at the net price paid to growers. But results from both Grainfarmers and Banks Cargill show returns to growers well above the average for this season.
Grainfarmers wheat director, Gary Sharkey, says the firms Oct-Dec pool has paid out between £75 and £78/t net to growers. "We had sold the majority of our longer pools by the end of January, which will look very well compared with growers who have stored their grain beyond then," he says.
Compared with the commitment for the current season, the companys ex-farm grain pool tonnage is up 100% for the coming harvest. While there are many options for reducing risk, farmers time is at a premium and one of the main attractions of pooling is that it relieves pressure, leaving the marketing to full-time traders, says Mr Sharkey.
At Banks Cargill, grain director Richard Whitlock says more than 50% of 2001 wheat in the companys pools was sold during the three-month price peak between August and October last autumn. "Then when prices rose again in early January, we sold everything else, so that we are beating todays spot price by between £14 and £17/t.
"We are just calculating our January-March pool, ready to pay it out at the end of April, and it will return growers a price in the mid to high £70s for feed wheat."
Banks Cargill has not yet closed its pools for harvest 2002, and expects that commitment will reach the same level as in 2000 once growers receive these latest pool price results.
The grain trade is haemorrhaging money at the moment, says Mr Whitlock, and the fierce competition for grain does not help this. "While pools, just like buy backs and minimum price contracts, are important tools, they are well understood products in a free market and perhaps some of the gloss has worn off.
"Now that the intervention support price does not give a guaranteed profitable return to growers, it may be that minimum price contracts offering the benefit of later upward price movements will be a serious contender in future. *
That means selling grain at a fixed price and buying a call option."
This years larger wheat crop could lead to greater use of pools, say traders.