Simple tracker smooths out grain futures

By Farmers Weekly staff

KEEP it simple – that is the idea behind a novel grain marketing scheme piloted by Soufflet Agriculture designed to overcome increasing price volatility.

Even traders admit to being foxed by current signals. Rather than trying to understand the market, the companys tracker fund adopts a “hands-off” approach, following feed wheat values over a period of time while smoothing the peaks and troughs (see graph).

It is claimed this returns at least an average price to participants, and will better it in a falling market.

In the past two years tracker has often beaten HGCA and spot averages.

Growers find the idea attractive; Soufflet says the amount of grain committed this year has doubled.

“Market signals continue to be confused,” says the firms Mike Stubbs.

“But we know wheat plantings are up by 10-11%, producing a potentially record crop. And an EU surplus is weighing down heavily.”

Currency, quality and political unknowns make selling decisions even trickier, he says.

“Given these unknowns, the top and bottom price limits to this market are not quantifiable.

“The whole idea of a tracker is to let the market look after pricing.

“No one knows what is really going to happen and we do not interfere. That way, no one can make a mistake, and the farmer is guaranteed at least 50% of the market potential.”

The fund works by plotting the daily closing price of the London LIFFE grain futures for the farmers chosen selling month.

This is done each day his grain stays in the tracker, producing an average feed wheat value.

Bonuses for certain qualities and varieties are available, and premiums can be fixed for milling wheats at any time.

The resulting price is then discounted by 3-5/t, depending on farm location, to produce a true ex-farm figure.

Mr Stubbs reckons 100t is the minimum meaningful amount of grain that can be tracked, but recommends that farmers sell 20-30% of their total through the scheme.

A split between Nov/Jan/Mar gives the best spread of risk and maintains cash flow.

Farmers can enter the tracker at any time and growers can also freeze the fund if they are happy with the value.

That can be useful if prices appear to be heading for a prolonged recession, he says. “As well as total transparency, the system provides an element of control for the seller.”

Soufflet charges 2% commission, based on the average futures price for the period the grain is in the fund.

A tracker fund is also available for oilseed rape, for a commission fee of 3%, says Mr Stubbs.