Fixing prices could help beat cereal price volatility

Posted: June 21, 2019 by Karen Kipling
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Cereal prices are fluctuating daily, it appears volatility is an ongoing theme in the marketplace.

In large part, this is due to problems with crop establishment in the United States. Cereal and maize drilling is well behind schedule, giving rise to a lift in wheat price of £5 – £10/t over the last 2 weeks.

For livestock farms cereal prices are of crucial importance due to their impact on feed costs.

For intensive producers particularly (poultry, pig, milk and beef) this has a significant impact on the economics of production due to the volumes of feed consumed in any one year. A typical 16,000 hen free range egg unit utilizes approximately 750 – 800t of feed per crop for which a £10/t change in price is obviously equivalent to £7,500 – £8,000.

Compared with prices this time last year, the difference in fixed prices available for September forward is £20/t which represents a significant saving on last year’s cost.

Fixing prices for feed going forward, may not achieve the lowest price possible, but can act as a risk management tool to ensure that a reasonable average cost for feed is achieved, to give some certainty about the cost of production.

We would advocate that policy and in general, we find that those that fix prices over the longer term on a regular basis, achieve a more consistent cost of production.

The graph below illustrates the changing trends between this year and last. In Spring 2018 cereal prices were increasing and feed prices followed very quickly thereafter. Compare that with now where wheat price has been coming down since Christmas and this has reduced the cost of feed dramatically.

It is possible within a week or two, even by the time this article is published that any potential savings disappear if cereal prices lift dramatically. However, as a general policy for intensive livestock producers, we would advocate looking at fixed prices every 6 months or so, over a 6 – 18 month period with decisions taken as to whether to lock into forward prices depending on one’s individual attitude to risk and views on the market expectations.

 

Robert Sullivan

Director

MBPR P.Agric

Email: rjs@gscgrays.co.uk

Tel: 0191 3039541

Greg Ricketts

Rural Director

Email: gpr@gscgrays.co.uk

Tel: 01748 897628

Ali Gray

Rural Director

FAAV

Email: ajg@gscgrays.co.uk

Tel: 01665 568 311

James Severn

Rural Director

Email: jrs@gscgrays.co.uk

Tel: 01347 837100