January 31, 2011

 

UK grains rally triggers wave attempts to default sales

 

 

Rising UK grain prices are generating a wave of attempts by its nation's farmers to default on sales prior to the season at reduced levels, according to a senior trader at a leading merchant vendor.

 

The trader said he was speaking to "one or two people a day" attempting to renege on contracts struck while prices were still well below the record GBP204 (US$323.29)/tonne at which London's near-term March futures contract closed on Thursday (Jan 27).

 

London's near-term lot fell to GBP96 (US$152.21)/tonne in June, before news of poor Canadian and Russian crops sparked the global grains rally.

 

The trader said, "Farmers who have sold at GBP150 (US$237.78)/tonne are trying to get out of it," said the trader, who spoke on condition of anonymity.

 

"It's disgusting. I thought we were better than that," he said.

 

"On more than one occasion we have had to write legal letters to people explaining their position," he continued.

 

Threats of default had been heightened by the snowy weather which hampered pick-ups in December.

 

"It created a grey area. Grain was not picked up when it was meant to be," a trader at a smaller practice said, who had required legal threats to secure a delayed pick-up in the Midlands.

 

"I don't see how a farmer can get out of a contract if it has been properly processed, although there can be ways and means of defaulting in some cases.

 

"I can see the temptation. If you had sold 500 tonnes at GBP100 (US$158.48)/tonne, that's a huge difference on what you would get today. That would be worth risking your friendship with a best mate over, let alone a dealer."

 

However, a large-scale northern grower said that he had heard of more attempts to default during the last price spike, since when many merchants have tightened up dealing practices.

 

Many, for instance, now scan contracts as they are sent to farmers as proof of postage, besides keeping phone records.

 

"Several farmers tried it with the 2007 crop and legal action was threatened," the grower said.

 

Nonetheless, many farmers were "feeling very hurt" at potentially low levels they looked set to receive, even from traders' grain pools.

 

"I do not think there will be many good results from merchants' pools for harvest 2010. One local merchant told me they have 40% of their usual tonnage for 2011 bought at levels sub-GBP130 (US$206.03)/tonne."

 

The average price growers would receive this year was probably about GBP130-140 (US$206.03-$221.84)/tonne.

 

"A price of GBP120 (US$190.16)/tonne was a very good one for a long time," he added.