“Know how a futures mar­ket works.”

Jan Peters is the founder of the infor­ma­tion ser­vice agrarfax.de (today owned by Land­wirtschaftsver­lag GmbH). He is a cor­re­spon­dent for the spe­cial­ist pub­li­ca­tion Agrarzeitung and pro­vides agri­cul­tur­al infor­ma­tion on a dai­ly basis to Reuters Ham­burg, Dow Jones Newswire Lon­don, and VWD Frank­furt.

Why is it increas­ing­ly impor­tant for farm­ers to pro­fes­sion­al­ly mar­ket their grain?

It is becom­ing more and more impor­tant for farm­ers to sell grain at the right time. It is only in this way that farm­ers can achieve the high­est pos­si­ble rev­enue. Infor­ma­tion about the weath­er and oth­er influ­enc­ing fac­tors – and there­fore about the sup­ply – deter­mine the price lev­el. Sta­tis­ti­cal fig­ures on grain stocks and the demand pat­terns of the most impor­tant buy­ing coun­tries, as well as the reac­tions of spec­u­la­tors to this, have a con­sid­er­able influ­ence on prices. In addi­tion, exchange rate move­ments and changes in trans­port costs are anoth­er impor­tant con­sid­er­a­tion.

Do these fac­tors apply equal­ly to all EU coun­tries or are there dif­fer­ences?

The pric­ing mech­a­nisms are basi­cal­ly the same across Europe. Grain farm­ers look to the Euronext futures exchange (Matif) in Paris. This is the most impor­tant futures exchange in Europe, and forms the basis for pro­duc­er prices. Wheat and corn are the most fre­quent­ly trad­ed agri­cul­tur­al prod­ucts on the Matif, but oilseed rape also attracts a great deal of atten­tion.

What are the three most impor­tant things to which a farmer must pay atten­tion in order to suc­cess­ful­ly mar­ket his grain?

First­ly, it is impor­tant to know how a futures mar­ket oper­ates. For exam­ple, there is a wheat price today for imme­di­ate deliv­ery, one for deliv­ery of new crop in August, a price for Novem­ber and anoth­er for Feb­ru­ary 2018. Farm­ers should always sell a par­tial quan­ti­ty at the high­est price lev­el in each case.

The Matif in Paris is the most impor­tant stock exchange on which pro­duc­er prices in every Euro­pean coun­try are based.

Sec­ond­ly, the farmer must sell based on mar­ket demand. If, for exam­ple, Alge­ria and Egypt buy large quan­ti­ties of grain and there is demand from traders for the prod­uct to export, then the farmer should sell into this demand-dri­ven mar­ket.

Third­ly, the farmer must always pay atten­tion to how high the pre­mi­ums are; that’s the dif­fer­ence between the price quot­ed on the exchange and the bid price at the sea­port or mill. If more is being paid at the sea­port com­pared to the Matif exchange, then this is always a sign to sell as traders are in a good buy­ing mood and the pre­mi­um ensures rev­enue for the farmer.

A basic pre­req­ui­site for prof­itable grain trad­ing is the abil­i­ty to store the grain, isn’t that cor­rect?

Yes. If the farmer stores it him­self, he can com­pare the prices of dif­fer­ent trad­ing part­ners and go with the best offer. This gives him greater lee­way when sell­ing his grain. If, how­ev­er, he stores it with a trad­er, then he is ulti­mate­ly more or less forced to sell the prod­uct to this trad­ing part­ner. How­ev­er, stor­age with a trad­er is gen­er­al­ly cheap­er than procur­ing one’s own stor­age area.

How much does the size of the oper­a­tion influ­ence the sell­ing strat­e­gy and when is it worth get­ting exter­nal advice?

The size of an oper­a­tion has no bear­ing on the price that can be obtained. Prices will be the same for a 100ha oper­a­tion as they will be for a farm with 4,000ha or 5,000ha. Exter­nal sup­port can par­tic­u­lar­ly help small­er and medi­um-sized oper­a­tions when it comes to mak­ing the deci­sion of when is the best pos­si­ble time to sell.

What role does one’s gut feel­ing play in a deci­sion to sell?

All play­ers that are active in the agri­cul­tur­al mar­kets need price fore­casts to be able to make deci­sions on a sys­tem­at­ic basis. This is the only way to find the opti­mum time to sell in the sea­son. For­ward-sell­ing a par­tial quan­ti­ty of grain and oilseed is gen­er­al­ly rec­om­mend­ed three to four times a year. That way you usu­al­ly achieve the high­est pos­si­ble price lev­el. How­ev­er, a cer­tain amount of gut feel­ing is also impor­tant when it comes to mak­ing this deci­sion. And when it comes to this gut feel­ing, it’s the mood on the mar­ket that’s impor­tant.