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Return of the milkman

Sparked by a series of downturns in the milk market, dairy farmers are looking for other sources of income. Selling direct to the public is one way of adding value and increasing margins.


Professional marketing will maximise returns

Jan Peters is the founder and editor of the information service He is a correspondent for the specialist publication Agrarzeitung and also provides agricultural information on a daily basis to Reuters Hamburg, Dow Jones Newswire London, and VWD Frankfurt (a service provider for financial information).

"The Matif in Paris is the most important futures exchange, and forms the basis for producer prices in every country in Europe".

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The Furrow: Why is it increasingly important for farmers to professionally market their grain?

Jan Peters: It is becoming more and more important for farmers to sell grain at the right time. Information about the weather, and therefore about the supply, generally determines the price level. Statistical figures on stocks and the demand patterns of the most important buying countries, as well as the reactions of speculators to this, have a considerable influence on prices. In addition, exchange rate movements and changes in transport costs are an important indicator of the price level. It is only by professionally marketing their grain that farmers can achieve the highest possible revenue in a business year.

What are the main factors that influence the price?

On the supply side, the development of yields and land development are important components. Changes in such fundamental factors cause the trends in supply and demand to change and therefore also lead to long-term effects on prices.

Do these factors apply equally to all EU countries or are there differences?

Europe’s grain farmers look to the Euronext futures exchange (Matif). This is the most important futures exchange in Europe, and forms the basis for producer prices. Wheat and corn, in particular, are the most frequently traded agricultural products on the Matif, but the oilseed rape price also attracts a great deal of attention. The most important futures exchange globally for grain, including wheat, corn and rice, is the Chicago Board of Trade in the USA. The price there is denominated in Dollar cent/bushel. The highest prices for grain are mostly paid at seaports. However, there are also times when the compound feed industry in Südoldenburg (with a monthly purchase volume of approximately 275,000 tonnes of feed grain) determines the price level. In France, the main seaport is the port of Rouen. In Germany, the highest prices are generally paid at the ports of Hamburg and Rostock. Freight premiums, and therefore producer prices for farmers, are calculated based on distance from these seaports.

Is the market more volatile than before?

There is no longer any state protection for setting producer prices in agriculture, as had been the case in the nineties with ‘external protection’ and intervention in Europe. Nowadays, farmers are linked directly to the global markets with their product. The notional purchase price for wheat of a flour mill in Egypt, minus shipping and cargo handling costs is what the farmer gets as a price. In some regions, the mills and the compound feed plants determine the direction of prices. Therefore, solid information on the initial situation is necessary in order to assess the future market situation. Global population growth and rising per capita income will lead to increasing demand for foodstuffs and also wheat. In particular, increasing demand for wheat and other agricultural commodities in China and India will necessarily lead to increasing prices in the medium term.

What are the three most important things to which a farmer must pay attention in order to successfully market his grain?

Firstly, it is important to know how a futures market operates. For example, there is a wheat price today for immediate delivery, one for delivery of new crop in August, a price for November and another for February 2018. Farmers should always sell a partial quantity at the highest price level in each case. Secondly, the farmer must sell based on market demand. If, for example, Algeria and Egypt buy large quantities of grain and there is demand from traders for the product to export, then the farmer should sell into this demand-driven market. Thirdly, the farmer must always pay attention to how high the premiums are, ie the difference between the price quoted on the exchange and the bid price at the seaport or mill. If more is being paid at the seaport compared to the Matif exchange, then this is always a sign to sell as traders are in a good buying mood and the premium ensures revenue for the farmer.

A basic prerequisite for profitable grain trading is the ability to store the grain, isn't that correct?

Yes. This discussion has already been going on for decades in the field of agriculture: Does the farmer procure a storage area himself or does he store the grain at the premises of a trading partner? If he stores it himself, he can compare the prices of different trading partners and go with the best offer. Storage with a trader is generally cheaper than procuring one’s own storage area. However, by having his own storage area, the farmer has greater leeway when it comes to selling his grain. But, in the past few years price development after the harvest was too low to warrant investment in one’s own storage area. The way I see it, farmers in large parts of Germany should not trade on the exchange themselves; agricultural traders and cooperatives can provide this service on their behalf. A farmer’s agricultural trader can give him a price for his grain at any time, also for the future. Apart from in the southern and south-western federal states of German, the traders provide the producers with various selling models. In eastern Germany, farmers in all regions can now enter into futures contracts with agricultural traders and cooperatives and thus achieve higher prices in the future.

How much does the size of the operation influence the selling strategy and when is it worth getting external advice?

The size of an operation or the supply quantity that an operation makes available to the market has no bearing on the price that can be obtained. This means that prices will be the same for a 100ha operation as they will be for a farm with 4,000 or 5,000ha. The farmer in a larger operation can often focus more on selling to the market because he has a farm manager to take care of the daily tasks, and thus has more time and patience for dealing with the markets. External support can particularly help smaller and medium-sized operations when it comes to making the decision of when is the best possible time to sell.

What role does one’s gut feeling play in a decision to sell?

All players that are active in the agricultural markets need price forecasts to be able to make decisions on a systematic basis. This is the only way to find the optimum time to sell in the season. Forward-selling a partial quantity of grain and oilseed is generally recommended three to four times a year. That way you usually achieve the highest possible price level. However, a certain amount of gut feeling is also important when it comes to making this decision. And when it comes to this gut feeling, it's the mood on the market that's important.

Further information from trade expert Jan Peters:

Fertilizer market

Besides pre-selling the new harvest in partial quantities, it is also important to secure the input materials for the new season, in this case fertilizer quantities, by making advance purchases. With this type of hedged selling and buying, you can secure as accurately as possible the targeted profit margin that you need for the new season.

European comparison


Germany produces significantly better wheat than other European countries with 12.5%, sometimes 13%, protein. This wheat is exported to countries such as Saudi Arabia, Iran, Algeria and South Africa, and is predominantly exported through the ports of Hamburg and Rostock. Eastern Germany has what is possibly the most efficient grain production and selling system in the world. The large operations are located here, there is adequate precipitation, and yields are high. And with Rostock, you've got an overseas port where any quantity of product in any quality can be loaded in any shipping unit at any time. The approximately 5,000 operations in eastern Germany with, on average, more than 300ha of cultivation area per operation forward-sell the harvest in partial quantities in order to hedge prices. These operations often also have storage facilities and are therefore significantly more professional in their marketing than smaller operations in western Germany. However, it would also be worth it for these operations to engage in partial selling and advance selling. It is rather a question of mentality, of getting used to and utilising this more modern strategy of selling to the market. Nowhere in Europe is competition between traders greater than in Germany. For example, there are six/seven different buyers in Rostock that export themselves. Each farmer generally has four to five local agricultural traders that are in competition with one another, which means that he always has a choice when it comes to achieving the best price.


France is the most important wheat producer of the 28 member states of the EU but only produces normal breadmaking wheat with approximately 11% protein. France's main customers are North African countries. Exports are strongly geared towards the Atlantic port of Rouen, with all of the logistics oriented towards there. The Matif is the key commodity futures exchange.


In Poland, the agriculture sector mainly consist of small farms. Pricing is also based on the Matif. Poland has hardly any exports and only imports occasionally. It actually needs its own production to supply its own population. The grain produced in the country is collected by local agricultural traders and cooperatives.

United Kingdom:

This country produces purely fodder wheat, which is exported to other European countries. The mills import breadmaking wheat from Germany, which they mix with their own lower-quality wheat varieties to achieve the required baking qualities.


The most important export port for European grain is the Romanian port of Constanta on the Black Sea. While Hamburg and Rostock export around 2 to 2.5 million tonnes of grain each on an annual basis, Constanta handles over 11 million tonnes. All major international trading firms therefore have branches in Constanta. The grain comes, for example, from Austria, Serbia, Romania, and Hungary and is transported to Constanta on the Danube before being exported worldwide from there. The main importing countries in the Middle East can be reached at much cheaper freight costs from Constanta than from the northern seaports. In terms of handling volumes, the European ports are ranked as follows: Constanta – Rouen – Hamburg – Rostock.


In terms of grain exports, Europe's main competitors are Russia, the Ukraine, and Kazakhstan. At present, these three countries provide 27% of the volume of grain traded worldwide. Good harvests and favourable currency conditions in these countries place a damper on European exports.


A well-functioning logistics system naturally plays a key role when it comes to trading grain. Farmers in the German states of Saxony and Thuringia benefit, for example, from a railway line that was built by major Hamburg trading firms. Before that, grain from Saxony and Thuringia was transported by HGV to the seaports, or via ship along the Elbe. However, the Elbe only has sufficient water for cargo shipping for a few months of the year, which means that ships often cannot travel. Resourceful businesspeople in Hamburg then constructed a railway line from Pirna near Dresden to the Port of Hamburg. Grain is loaded in Pirna: oilseed rape, barley, wheat for export. Grain is now transported by train from Pirna to Hamburg on a daily basis while soya meal is transported from Hamburg to Pirna. The logistics costs have fallen by at least 30% due to this new railway connection, which means farmers in Saxony and Thuringia can obtain accordingly higher prices for their grain.



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