Contract potatoes and still benefit from rising prices. That is the basis of the potato forward pricing contract. DCA developed this in 2007, under the name click contract, together with LTO and the processing industry.
These kinds of contracts are an indispensable part of the contracting of potatoes. They are for the most part standard contracts. Variety, quality, delivery and the like are all recorded. Only the price is different. It is agreed that the supplier of the potatoes may click on the price at any time for the price as it is currently tradable on the potato futures market. That price is therefore the benchmark of the contract. In that case, a discount is generally applied. This can be a percentage or a euro amount, whether or not graduated.
In order to limit risk, it is often stipulated that a limited part of the expected yield may be hedged 'before harvest'. And the remainder 'after the harvest' when the potatoes are in the shed and there is clarity about quantity and quality.
The system offers the grower the freedom to determine for himself when he sets his selling price. This can also be done in steps spread over the season. The price is therefore based on the quotation on the futures market, but the grower does not take a factual position because of the click contract. He therefore has no obligation to deposit.
It is up to the buyer of the potatoes, the provider of the forward system, whether he hedges his position by taking a future position. And thus fixes its purchase price. He can also choose to match that position with his sales book or by entering into a 'back-to-back' trade in the market.
This has resulted in a system that offers many advantages to both the grower and the buyer.
The grower can trade on a public independent benchmark; the quotation on the futures market minus a small discount. His physical delivery and logistics are arranged and he does not have to set up a deposit, which is normally required on a cash-settled futures market.
The customer benefits because he offers his suppliers extra options and flexibility. By using the futures market as a reference price, he can easily use it to manage his price risks.
Both supplier and buyer can time their purchase/sales themselves without having to negotiate with each other. For example, the processor can already cover its position in April and the potato grower only in September.
Are you curious how we as DCA approach and guide the above? Or would you like to spar with us to solve similar challenges within your company? Then call 06 46 26 58 74 or email R.vantRiet@DCA.nl
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