You are here: News > Insights

You are viewing 1 of your 2 free articles

You’ll need to join us by becoming a member to gain more access.
Already a Member?

Login Join us now

Talking Policy with Mike Hambly: ‘risk management’ is an activity we farmers are well versed in

Mike Hambly farms in a family farming partnership near Callington in south east Cornwall. He is currently the chair of the NFU Combinable Crops Board and is the first Cornishman to hold the position.

Twitter Facebook

One of my farming cousins recently returned from a holiday to Las Vegas; a trip timed so he and his wife could watch the World Bull Riding Championship. The allure of Vegas gripped him, like many other first-time visitors, and he admitted to enjoying some ‘small’ flutters on the tables.


Gambling or, as those of us who market our crops prefer to call it, ‘risk management’ is an activity we farmers are well versed in.


Weather information, production statistics and news events all create the volatility played out on the futures market screens we avidly watch as a tool which supports our marketing decisions. In many ways it is little different to my cousin playing blackjack in Vegas and deciding whether to twist or stick; his ability to manage or reduce the risk being a product of his mental ability to remember previously drawn cards and a rapid mental calculation of probabilities.


As cereal producers we do the same thing, following the movements of prices on the futures markets and using this to influence our decision of what to plant and when to sell. Prices ex-farm are inextricably linked to futures markets and the transparency this delivers puts us in a much better position than our dairy farming friends who have no such mechanisms to protect their milk price.


However, the very foundation of our ability to trade grain forward or enter into contracts which are in any way related to futures markets such as LIFFE wheat is under threat due to changes being proposed in the EU consultation on Markets in Financial Instruments Directive (MiFID).


MiFID was introduced in 2008 in response to the financial market events and commodity price rises during 2007-08. However, the changes being proposed under the current MiFID II consultation could have a serious impact on our ability as growers to trade grain forward and for the whole industry; merchants, co-operatives and end users, to use futures markets and contracts in the way we currently do to protect our position, manage risk and agree contract prices.


The NFU, together with other grain production and trade organisations, are in discussion with the UK regulators Financial Conduct Authority and EU regulators in Paris and Brussels. We’re working to establish where the changes proposed may limit our access to forward pricing mechanisms as an unintended consequence of regulation aimed at reducing the risks from banks and speculators involved and driving private trades out of the market or on to regulated exchanges.


Regulators are examining physical and derivative market mechanisms which facilitate forward pricing, a fundamental element of our grain marketing systems. Consequently we are anxious tools currently available to manage volatility will not be put out of reach to both crop and livestock farmers through administrative and financial burdens imposed as a result of changes to the regulation.


If the EU Commission takes the framework and language used to control financial markets and apply this to commodity markets without a careful interpretation, it could limit our ability to enter into forward contracts or those linked in any way to a futures market, without registering and working through a regulated exchange (e.g. LIFFE, MATIF or indeed contracts not yet developed).


An increased level of complexity, cost and risk may reduce the liquidity on already thinly traded contracts for grain, bringing into question their longevity.


We need to establish in the consultation that grain and other agricultural commodities may be traded in physical and forward contracts for ‘commercial purpose’ as currently applies to electricity within the energy markets and to ensure the definition of such does not disadvantage us, or allow loopholes for those who would normally use regulated exchanges.


If you are attending this year’s NFU Annual Conference in Birmingham on February 24-25 there will be an opportunity to hear more about what the NFU is doing in response to this and other issues with planned break-out sessions on ‘Future-proofing your business for volatility’ and ‘What the NFU is doing about the price of wheat and commodities.

Twitter Facebook
Rating (0 vote/s)
Post a Comment
To see comments and join in the conversation please log in.

More Insights

User story: Old school power heads up cost conscious farming fleet

With a keen eye on his bottom line, Scottish-boarders farmer Richard Reed decided to exchange new machinery for tried and tested work horses. Richard Bradley finds out more.

Maximising soil fungi to reduce reliance on inputs

At this year’s Groundswell show and conference, farmers and the wider industry learnt the importance of boosting soil fungi in order to maximise the output and sustainability of their soils.

New approach giving rich pickings for fruit business

One pick your own fruit business is drawing in the crowds and using the opportunity to communicate positive messages about farming and the environment, as Aly Balsom finds out.

Machinery hygiene to reduce grass weed spread

As combines get into full swing, the importance of regular machine clean-down becomes ever-more apparent to help reduce spreading of grass-weeds. Richard Bradley reports from the recent BASF ‘keep it clean’ event.

'Jailbird' gets fresh start after launching pig farming business on release from prison

Essex girl Tracy Mackness turned her life around when she launched a pig farming business on her release from prison.
FG Insight and FGInsight.com are trademarks of Briefing Media Ltd.
Farmers Guardian and FarmersGuardian.com are trademarks of Farmers Guardian Ltd, a subsidiary of Briefing Media Ltd.
All material published on FGInsight.com and FarmersGuardian.com is copyrighted © 2016 by Briefing Media Limited. All rights reserved.
RSS news feeds