Farmers urged to manage risk

FARMERS were urged at last week’s Teagasc national tillage conference in Carlow to manage their risk from big fluctuations in grain prices.

By doing nothing, farmers are anticipating that prices will increase, said derivatives trader Bill Beagles.

He explained how farmers can gain from agreeing to sell crops still in the ground on a date in the future at a price agreed today — thus ending harvest price worries. Or insurance, in the form of options, can be purchased to protect against price trends.

He said that prices of grain and other farm commodities should bottom out in the first quarter, and then start to improve as traders switch focus from this year’s bumper crop to next year’s tighter market.

However, many other factors make price prospects difficult to predict.

Already, wheat export prices have risen about 25% from December lows, due to market concerns over the severe drought in Argentina, the world’s fourth largest wheat exporter.

Concerns about very cold weather in North America and Europe, logistical problems in the Black Sea region, heavy official intervention purchases in Russia, a shortage of good quality milling wheat, a greater than expected reduction in autumn planted crops, and persistent dry weather in the US Great Plains and the North China Plain are also boosting wheat futures.

According to latest reports, the severe drought in China’s bread basket is affecting almost 43% of the country’s winter wheat crop

South American agriculture in general faces disruption, with the Argentine drought leaving global soybean production inadequate to meet demand this year. This could in turn pull up maize and wheat prices. Without wheat from Argentina, Brazil will have to find new import sources.

A drought-related slump is predicted within Brazil of up to 7% for soybean production and 30% for early maize.

Paraguay, the world’s fourth largest producer and exporter of soybeans, expects to produce 43% less soybeans than last year.

Globally, farmers will cut their wheat acreage 5% in 2009-10, predicts the International Grains Council.

But depressed demand due to the global economic recession will prevent a repeat of last year’s unprecedented run-up in agricultural commodity prices.