“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.