Angus Woods: Why futures contracts would transform the beef sector

Fertilizer costs have been rising for well over a year, and the 2021 crop was the point where things really took off.

Those who were brave enough to buy fertilizer last fall (when it was expensive compared to previous years) now wish they had bought more back then.

Those who held back from the market in autumn pay a high price for their decision.

Farm gate prices have increased – although not enough to cover the increases – with grain and milk being the main contributors.

Arable and dairy farmers are fortunate to be able to sell their produce forward – a risk management tool unavailable to cattle and sheep farmers.

Good work is now being done between processors and beef farmers, with two of the big three factories operating bonus schemes for suppliers who meet market demands and are willing to do a little extra.

It’s a positive move, but unlike milk and grain, they don’t offer a guaranteed price.

If ever there was a time when appointment contracts were needed for cattle farmers involved in winter fattening, it is now.

Many fattening farms will soon have to make decisions about finances, stocking rates, silage deliveries and dealer credit for the winter.

It is in everyone’s interest that the winter finishers are kept in the market. If the government was thinking strategically, a winter fattening support mechanism should now be put in place to maintain a year-round supply of finished cattle rather than an autumn glut.

Extreme circumstances, led by the Russian invasion of Ukraine, mean that some farmers who sell grain or milk forward are facing a difficult trading period where their agreed price is well below current market prices.

While some dairy cooperatives have put forward proposals to support producers, grain farmers are in a more difficult position.

Dairy cooperatives in the vibrant milk market can help their members in the spirit of the cooperative movement.

Grain farmers in a similar predicament need the same help from the same cooperatives.

It is important to remember that these are exceptional times and in normal times forward selling is an excellent form of risk management that should be encouraged.

There are many dairy farmers who have expanded (or entered the sector) on heavy credit and who, when milk prices have plummeted in the past, have been bailed out by agreeing forward prices, often at the urging of their banks.

Many of the best tillers regularly sell grain forward and know the benefits.

Every day these days we can look at our phones and find out what the international markets are valuing for a ton of grain. Tillers can sell crops year-round instead of waiting until the harvest is complete like previous generations.

The current sharp rise in prices should not deter farmers from considering forward sales and fixed price contracts as, as with all commodities and investments, markets can go down as well as up.

What is important is the availability of up-to-date market information, advice and forward-selling opportunities.

We all want to sell at the top of the market, but as with any investment, it’s difficult to determine where the top is until it’s too late.

The work done by cooperatives in recent years to make fixed price contracts available to farmers should be recognized and every effort should be made to ensure their availability for future years.

It is important not to damage the concept, but to use the contracts strategically in order to minimize the financial risk for each individual company due to possible lower prices in the future.

Angus Woods is a drywall builder in Co Wicklow