CEREAL prices have shot up by 50% in recent months ending a three-year downward trend.
This represents a huge boost to grain growers who will get paid substantially more for their grain.
The downside is the price increases are expected to hit a wide range of food products, dependent on grain. Poorer crop returns, bad weather including serious droughts in Russia and elsewhere have hit grain supplies.
Speculation is also a factor, but supply and demand has been the key to the sharp price rise in the past few months, said John Kelly othe Dublin-based Delta Index.
This year was “notable in that the three-year constant downward trend for cereals prices was finally shattered giving growers and the cereals trade a well-deserved boost to their pockets,” he said.
Farmers looking to 2011 face uncertainty as this dramatic price shift has led to increased volatility. “The question that growers are now addressing is what price they expect to achieve for next year’s harvest?”
Traditionally growers have either taken a spot price at harvest and/or done forward contacts with merchant’s months in advance of harvest. Those are risky options and can lead to poor prices relative to overall annual market highs.
A new way to manage this risk is to trade cereal futures with Delta Index, he said. Farmers can use the on-line system to hedge against the risk of a fall in the value of their 2011 crop or their actual crop for this year, while still benefiting from any potential price increases.
Cereal growers in the USA, Britain, France, Canada and Australia, make extensive use of this as a means of protecting their crop incomes, he said.
Kelly claims the facility means clients can hold a position (or hedge the value of their grain) for up to 14 months while only paying for the spread on the futures contract.
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