HIGHER RISKS VS HIGH MARGINS: LET’S ACT!

Sébastien
09 Dec 2021

Uncertainty prevails. For the last few weeks, grain prices have been more volatile. Although old crop fundamentals remain supportive, markets have been strongly influenced by outside elements. Inflation risks, energy prices, OMICRON and geopolitics can all considerably impact both grain prices and cost of production. We expect the uncertainty to remain for some time.

This volatile context is making it more complex to predict the markets. Your farm margins are difficult to budget as input prices stand at historically high levels, with very little short-term clarity. Production costs are on the rise, so is your risk. 

Current margins remain financially healthy for most farmers. Risk management is all about acting against uncertainty and protecting profitability.

The worst-case scenario now would be for new crop prices to fall and stay at reduced levels. Although it is not yet a given, if we consider historic precedents, prices have always dropped very significantly after they peaked. Prices never stay at the highs for long. They have reached current levels to incentivise farmers to produce more. That is happening globally, and the probability of a restocking cycle in 2022 is becoming more likely. 

You are facing record production costs. Simultaneously, your output is trading at record highs. Considering higher risks and current margins, the situation can only incentivise UK and European farmers to sell a higher proportion than normal at this stage of the season. This is what ODA will continue to advise you to do.  

As such, we will probably advise you to advance sales to at least 50% of your budgeted 2022 production before spring, and probably more before harvest. We will also be encouraging you to look at prices for 2023 harvest.

Sébastien Mallet 

 ODA UK