Volatile Options and RM Fixing Could Help Producers Reduce Feed Costs

UK - Pig producers could use volatility in the grain market to their advantage. Also being more aggressive when buying stocks could improve the prices they pay for cereals and feed and help them to reduce costs and improve stability, writes Jane Jordan, ThePigSite Editor.
calendar icon 11 February 2008
clock icon 4 minute read
Alastair Dickie, HGCA

This was a key message from Alastair Dickie, Director of Crop Marketing at the Home Grown Cereals Association at MLC's recent Outlook Conference. He said that although cereal prices had escalated considerably - with wheat leading the market - opportunities were still available for producers to get a better deal if they monitored the markets.

"As a consumer of grain, the pig industry's influence on raw material markets is negligible So producers need to be more assertive when buying. They need to know what's going on and use the information," he advised.

He said buying pig feed against the pig price was not the best option and producers should widen their purchasing perspective.

"What goes up must come down and although world stocks are still short there's volatility in the market and some opportunity for lower prices," he added.

Monitoring the markets could give producers more room to speculate and take advantage of short term dips in market prices. Using HGCA's markets analysis could help.

Buying options

Buying through the options market could prove a wise move as predictions for forward buying currently looked optimistic. Plantings in the northern hemisphere has increase substantially - estimated at 222 million hectares, up from around 214 million the year before. The prospects for harvest 2008 look good providing it all came through as an optimal yield. Weather effects and climate change could not be predicted and that had a big impact last season

"Last year 40 per cent of the harvest was lost because of poor eather in July. So will climate change affect the variables of yields?" he asked.

The biofuel sector would also continue to create some pressure. Although corn acreage was increasing, there were still concerns about demand and this may impact on wheat supplies.

"You want to be paying attention to te futures market, watch what's happening here," advised Mr Dickie. He said that equity firms were now investing in commodities as they were attractive against other investment markets. "

This isn't helping the situation, and producers would do well to monitor it - but don't get sucked in," he warned.

Currency effects also warranted closer scrutiny and needed to be analysed against the pig price. "Talk to your bank, talk to your pig buyer and find out what your feed provider can offer," he said.

He hinted that raw materials plus type contract may be a better option as it allowed producers to fix the price of the key ingredients, wheat and soya, and then add on the extras. This type of 'buyers fixing' strategy may offer a little more stability to their businesses and provide a lever to negotiate terms with processors.

"Get hedging and analyse," he urged.

All the papers from the conference are available at www.mlc.org/events

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