Interview Frans van Wanrooij
'Being aware of your sales strategy is a must'
For the second time, Frans van Wanrooij, senior business advisor at ABAB, makes a plea for the use of the potato futures market. There are different motivations for this. It gives growers a sense of the market, independence and a solid foundation.
In March 2019, Van Wanrooij held a plea for deploying the potato futures market as a market instrument. At that time, the contract for April 2020 stood at €16,70 per 100 kilos, to eventually rise to €17,80. The contract for April 2021 is currently priced at €15,70. According to the advisor a good time to review the strategy for the coming year.
Is a price of €15,70 per 100 kilos not below cost, or should the grower be satisfied with this?
"First of all, this price is independent of the cost price. You have to see it in the right market perspective. Last season the final price was considerably higher due to persistent drought. However, if it all grows well (in a normal growing season), then we have acreage simply too many potatoes in Europe If you look at the Belgapom quotation for the past 19 years, you will see that the price in half of those years is lower than € 10. A price of € 15,70 is then interesting. When I gauge the mood now, growers are inclined to plant the same acreage next year."
However, in your blog you mention that the cost is very important?
"It is certainly important to know your cost price exactly. On sandy soil this is of course lower than on clay soil. However, it is difficult to calculate exactly exactly because there are annual differences. Again, due to the drought, fewer kilos are harvested and there are more costs before irrigating. This leads to an unexpected increase in the cost price. The futures market almost always makes it possible to fix your potatoes above the cost price. An opportunity almost always presents itself in the run-up to the harvest. We saw this season that the market got going later, when the harvest got into trouble."
Why do you think only a relatively small number of potato growers use the futures market?
"I think the problem is twofold. On the one hand there is unfamiliarity, because growers do not know exactly how it works. On the other hand, there is the additional contribution when the price rises. The cash flow at your company must be adjusted to this. During a normal growing season, when the current acreage, the market tends downwards rather than upwards (relative to the current price). The fear of having to deposit a lot of money becomes smaller. An entrepreneur must think carefully about how he handles his product. Potato growers are regularly dependent from 1 buyer, where all potatoes are fixed by means of a contract or pool. It is therefore important to remain independent, so that your financial result is independent of the interests of the buyer."
Do financiers (such as banks) play a major role in this case? Isn't it the case that they discourage the use of the futures market because of the cash flow needed and the uncertainty factor?
"I have worked at Rabobank for 18 years and I know how people think there. Anyone who devises a vision, which then puts it down on paper and knows the figures, has support from their financier. Hedging above cost is no object. If a credit is needed to be able to make additional deposits, you create transparency. It is always important to remain clear, even when it turns out negative. Ultimately, it is about guaranteeing profitability. No bank can object to that."
Why is it so important to be independent?
"Being aware of your (potato) sales is, in my opinion, an absolute requirement. Smaller potato companies, with 30 to 50 hectares of potatoes, are usually tied to 1 buyer. The factories often do not accept a second party. The very large companies have often more in the milk. They make special agreements with the buyers and thus know how to get a plus on the price. The futures market is certainly interesting for the category below that. I think that's very bad. Put your vision on paper and calculate your risks. Then you make a well-considered decision that can certainly be rewarding."
Isn't the availability of seed potatoes the main reason why so many contracts are concluded?
"The seed potato availability certainly plays a role, although it is inherent to the situation. You are independent in the potato futures market and you can follow your own strategy. If your buyer pursues a strategy that does not suit your company, you cannot do anything about it. ABAB also works closely with the BAJK. Every year we hold up a mirror to 10 to 12 business successors and we also have them critically assess sales within the company. I think that all advisers in the agricultural sector have the task of helping the next generation Unfortunately, the potato sector has relatively little market vision anymore. I am also active in the tree nursery. There, a vision of 3 to 6 years is normal, and you have to look for buyers yourself. It is different with potato growers. hardly to other parties or outlets."
Niels van der Boom
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