14 December 2023
Forward selling – did you miss the boat or dodge the on-coming bus?
Michael Hennessy, Teagasc Head of Crops Knowledge Transfer, reflects on a conversation he had with Phelim Dolan, a grain trader in Comex-McKinnon, as part of an episode of the Tillage Edge podcast on grain markets and what future prices may hold.
Phelim is quick to point out that there is no certainty and major global events can swing price one way or another. Phelim talked on the grain harvested and stocks-to-use ratio of the various grains. The current stocks-to-use ratio of the major grains – like wheat, maize and barley – is described as “comfortable”. Phelim also points to some issues with winter plantings in Europe, and dryness in South America and Australia, but the potential effect of these is a long way off.
Listen in to the Tillage Edge podcast below:
On a positive note, Phelim pointed to the premium for next year’s harvest, with a decent gap between the nearby prices and the prices in November. Is it worth looking at it?
It’s worth noting every time a farmer passes up a price before harvest, the assumption is the actual grain price at harvest will be greater than today. In most years, this is not the case!
While forward selling offers potential advantages, it also comes with its share of risks that farmers should carefully weigh up before diving into this approach. By taking a forward price today, this reduces the exposure of a price drop at harvest. But equally, many will argue if the price goes up between the forward sale and harvest, then the farmer has lost out. Yes that is true, but the remaining grain not sold will benefit from the increased price.
In autumn 2021, many farmers sold a proportion of their grain forward and lost out to a huge increase in prices following the start of the war in the Ukraine in February 2022. Prices peaked in May 2022 and started falling from May 2022; this fall gained momentum in the early part of 2023.
In the autumn of 2022, there were good opportunities to forward sell grain at prices well above the harvest 2023 prices. Forward sold wheat made approximately €50/t more than the harvest price, and forward sold oilseed rape made close to €120/t over the harvest price. Merchants and grain traders reported there was very little grain forward sold for the 2023. Why? Probably human nature and the hope that high prices would return.
The grain markets are open every week of the year and all merchants are happy to forward sell small and large tonnages of grain. The key areas to remember for a farmer is to know the average yields for your crops. Be cautious about selling more than 60-70% of these yields and sell little and often. For many larger farmers, this means selling every month (or selling 12 times), whereas smaller farmers may choose to sell 5-6 times during the year.
Never close your mind to selling some grain before harvest and if utilising the forward markets, take a little and often approach.
For more episodes of the weekly Tillage Edge podcast, click here.