Open market may offer better returns than long-term biofuels contracts, says Framlingham Farmers

Though biofuels undoubtedly offer enormous potential for UK agriculture, farmers should exercise caution before committing too large a proportion of their wheat production to long-term contracts, according to Simon Tubbs. Marketing Manager for Framlingham Farmers, the farmer-owned purchasing and marketing organisation which has members in East Anglia, the north west and south east of England, Mr Tubbs highlights the need for producers to pursue a balanced marketing strategy.

"The fledgling biofuels industry has been a significant catalyst for reversing the downward trend in commodity prices over the last few years and if its potential is fully realised then demand for raw materials will scale new heights. Indeed, it is difficult to see how the requirements of food and fuel can be met from current production, particularly in the light of worldwide stock reductions following recent poor harvests.

"Whilst additional forward selling opportunities are always useful, grain and oilseeds prices have increased steadily since last summer and our view is that producers should keep a close eye on the markets. Wheat futures for May 2009 are currently trading at around £94.75, suggesting over £90 per tonne ex-farm, whereas the implied ethanol contract price is below that figure. Committing to sell grain beyond 2009 would therefore seem to be rather premature.

"Even if only some of the bio-ethanol facilities being proposed for the UK actually proceed we expect prices for agricultural products to remain supported as demand for fuel and feed is likely to outstrip supply. If other unforeseen issues such as the increasing effects of climate change, 'one-off' weather events and political interference are factored into the supply/demand equation then the only certain thing is that markets will become more volatile.

"We continue to monitor the markets very closely and believe that one of the best ways for our Members to reduce the potential negative impact of price volatility on their businesses is to participate in our marketing pools. Because these can operate in both the food and fuel markets they allow Members to enjoy all the benefits of above-average returns, within a balanced marketing strategy."