Risk management tools in favour

14 April 2000

Risk management tools in favour

By Philip Clarke

ALMOST half the ex-farm grain handled by Dalgety this harvest will be traded through one of its risk management schemes, senior executives have confirmed.

With new crop prices close to break-even and with scope for cost savings almost exhausted, the margin for error in crop marketing has gone, says commercial director Andrew Barnard. As such, demand for mechanisms such as grain pools, minimum price contracts and managed funds has grown steadily.

Based on the number of commitments already given for harvest 2000, he predicts that 40% of ex-farm grain will be allocated to one of these Dalgety schemes. "We recommend that farmers put at least half their volume to some form of risk management tool," he says.

This protects farmers from some market volatility, which is bound to get worse as EU prices reach world levels and the buffer of export refunds is removed.

Producers using the companys managed fund, which locks in a minimum price and adds value by exploiting market movements, have certainly benefited. Returns have beaten the market average in each of the past three years. For example, grain trading in the 1999 short fund (Oct-Dec) received £76/t against a market value of £68.

But, while the popularity of pools and funds has increased, Dalgetys crop revenue insurance product Dalgety Protect got off to a slow start last year. The policy guards against adverse movements in yield and price, for which the farmer pays a premium of about 2% (less than £10/ha).

"It is a new concept and is complex," says commercial manager Trevor Harriman, justifying the low uptake. "But we firmly believe it is the future." The EU commission has already taken an interest and see crop insurance as an alternative to intervention buying.

Growing quality assured crops is also seen as a way of minimising risk. Dalgety managers believe this year will be the first time non-assured crops will trade at a discount, and are planning on storing as much as possible separately.

&#8226 Producer-owned SCATS has announced a 30% increase in tonnage committed to its Crops 2000 farm-stored grain marketing pool for the coming season. &#42

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