Suppose there is no futures market (anymore)

I spoke to someone who questioned the potato futures market. The value would be minimized by relatively little turnover and the number of open positions. But, what if there is no more potato futures market? How do we look at price formation and how should you deal with price risks?

It is true that the volume on the futures market disproportionate to what is traded in Europe. However, almost all stakeholders look at the market with a slanted eye; just like you look at the rainfall radar every day. "North America will be fine without a futures market, won't it?" True, but the volatility in the hectare yield is in stark contrast to Europe. The erratic maritime climate in Europe is to blame for this.

Importance is there for sure
All in all, you can say that the importance of the futures market (however limited) is certainly there. This can also be seen in the fact that there are fewer trading houses, while the number of growers who have more hectares has increased. More acreage per grower also entails more risks. This is reinforced by the volatile picture of yields, which has led to the development of contract types that are directly related to the development of the futures market.

The click contract is an example of this. In the Netherlands in particular, delivery agreements are made, whereby growers can determine during the season when they fix the price. Particularly in dry years, the possibility of linking contracts to the development of the futures market is being looked at. Buyers get certainty and growers get the opportunity to fix their potatoes above the average contract price. Incidentally, a well-functioning futures market is a plus.

small market
There is, however, a development; this season there were more than 6.000 open positions, compared to 10 4.000 years ago. However, it is still a small market compared to the futures market for corn. There were almost 25.000 contracts in position (open) in September. However, a potato futures market with an open position of 10.000 contracts should be feasible within 5 years; also to keep it profitable for intermediaries and exhibition organization (EEX) among others.

Receive the magazine in your letterbox
This abbreviated article is part of the potato analysis of 2018. The subscribers of Arable farming Pro en Potato market have recently received it. Would you also like to receive this magazine? then click here to become a subscriber and receive the magazine sent to you.

With a subscription you get access to all private articles, data and market information on Boerenbusiness† As a subscriber you also get access to the National Economic Agricultural Congress and other seminars and workshops. Curious about all the benefits? View our offer in the webshop.

Edwin Burgers

Edwin Burgers is director of DCA Group, which focuses on market consultancy and risk management for agricultural entrepreneurs and agribusiness. He can also be seen regularly in the market update on the potato market.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.