Market-conscious farmer gets wheat contract

Agrifirm launched the Guarantee Plus contract for wheat on Wednesday 3 May. In addition, growers can use the Matif futures market as an instrument to achieve a higher price level for their wheat. That should give dynamism to wheat prices. Aart den Bakker of Agrifirm Plant explains why this contract form was chosen.

With the Guarantee Plus contract, an affiliated grower fixes the price of a batch of wheat (minimum 50 tons) by means of day trading. This can be done before, during or after the harvest. Then the instrument of the futures market comes into effect. The plus is determined on the basis of the price for the May contract on the Matif in Paris. Until settlement of the contract, on April 28, 2018, the grower can decide to determine the futures market price. The return on this is paid on top of the previously determined price. You do pay a premium for this plus.

Did this contract form arise due to market demand?
'In part that is indeed the case. Arable farmers have been asking us for a contract form that provides direct insight into the market for much longer. That is also Agrifirm's idea. The futures market delivers a price development every minute. You can anticipate and take advantage of that. A similar development can also be seen in other crops. The most well-known are the click contracts for potatoes.'

Is the return, which the futures market offers, sufficient to opt for the Guarantee Plus contract?
'During the season, the futures market can move quite a bit. This is because there is an immediate response to the vote that applies. This is much less in day trading. If so, there is a shock absorber in between. I believe that many price fluctuations are possible until May 2018, which offer a real chance of a return.'

Dry conditions in France, cold in Eastern Europe and flooding and snow in the US are currently keeping the market busy. Is it a coincidence that Agrifirm is launching the contract now?
'That is indeed pure coincidence. The launch date for the Guarantee Plus contract has already been determined. Growers can take advantage of the commotion that arises in particular.'

What are your ambitions for this year. Start small or is everyone welcome?
“The contract is open to everyone. We do believe, however, that a certain group of wheat growers is interested in this sales tool. Those who are involved with the market every day and who like to follow this. However, the pool is expected to remain the largest. We will continue to support them as much as possible. Many growers consciously opt for marketing via the pool and rely on Agrifirm to sell their wheat for the best price. We have no plans to come up with such a contract for other crops as well.'

What happens if I sign a contract but don't "click"?
'That has no consequences for the grower. If the futures market price is below the set level on the expiry date, nothing happens. If there is no click, but there is still a plus to be made, this amount will be paid out. Will the price rise? Then you benefit as a grower. You don't have to worry about a fall. You pay a premium for that piece of security.'

Niels van der Boom

Niels van der Boom is a senior market specialist for arable crops at DCA Market Intelligence. He mainly makes analyses and market updates about the potato market. In columns he shares his sharp view on the arable sector and technology.

n.vanderboom@boerenbusiness. Nl

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