Ask An Expert: Nick Matthews on the buyer’s perspective
In the latest in our Ask An Expert series, Nick Owen from Home Farm asks:
“How do buyers decide what price they’re prepared to pay on a given day? And how do they assess risk when committing to grain?”
Our expert for this question is Nick Matthews, a wheat trader with over 40 years’ experience in the grain market. Nick gives a comprehensive view of what a grain buyer is looking for in an ideal trade.
Nick shows how reliability across the whole chain – from farmer to end user – is central to risk management and mutually beneficial buyer–seller relationships:
Buyers prioritise sellers who load the agreed quantity on time and stay flexible when things go wrong
Prices are shaped by futures and local premiums, along with a buyer’s existing commitments and the urgency of need
End users don’t want price exposure, so traders manage risk by spreading volumes over time and sourcing from trusted sellers
Accurate sampling, good storage and honest quality information all make a seller more viable for a buyer
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This article is for general information only and is not an instruction to trade. While we make every effort to ensure the accuracy of the content at the time of publication, Hectare Trading makes no guarantee regarding the data provided.
Transcript
Nick Owen
How do buyers decide what price they’re prepared to pay on a given day? And how do they assess risk when committing to grain?
Nick Matthews
I’d say a good seller is somebody who you can rely on. Once you’ve done the deal, you want to know that the person you’re buying from will execute the deal with you, i.e. we put transport through to them, they will load it when we want them to load it, that the grain is all good quality and goes into the home without any hassle.
That’s the perfect deal – if things go wrong, they will be bit flexible and we are flexible with them. And then we will execute the business and pay them on time.
The price is determined by, futures is the basis of the market and each home you go to will have trading at a premium to those futures. I would know my book. So if I’ve got homes somewhere in Somerset or homes up to the North West and I need wheat for next week, I’m going to make sure that I pay for it to get it bought and from somebody who I can rely on to execute the business.
So the price is against the way the market is on the day, but also we reflect my book. Usually one would have sales made that you want to buy the grain against to execute it and, if it’s a good seller, you’d make sure that you buy it from him rather than somebody who you couldn’t rely on.
The end user is usually covering his order book. He doesn’t want to be exposed to that price risk and that lack of cover for any longer than he needs to because he’s a flour miller – he’s not a risk taker, he’s not a commodity trader.
So he will come on to us and say, do you want to do a thousand tonnes a month? That would be too much but we might say, well, we’ll do 10 loads a month, i.e. 290 tonnes a month, or we might do 500 tonnes a month and we’d find a way how to cover it. We would go to some reliable sellers, farmer-traders who are forward-thinking and say, look, we’ve just done this business into a particular mill and tell them, how about doing two loads a month or do you want to do 300 tonnes or whatever to start so we can start covering that business. We can take some margin, obviously, and they lock themselves into a good market, into a good home.
And again, they want to buy from a trader that they know is going to deliver. They don’t want to buy it from a trader who’s just somebody who always is a risk-taker and then doesn’t actually deliver on the day. It’s again, it’s that whole link, the whole way through. So we want to have somebody who can load, we want a haulier that will take it there and an end home that will tip it, if it’s good quality grain.
Currently obviously prices are very close to, if not below, cost of production. And that’s hurting and it’s hurting a lot. When prices are very high, farmers make more money, we make more money. And when prices are low, like now, and when the market is flat, it’s extremely difficult for anybody and everybody to make any money out of this current market because everybody’s bidding the same price. Some traders will have forward sales – they’re possibly still prepared to pay a little bit extra to get those sales locked in, which will have a good margin.
Sampling is absolutely critical. Farmers have got much, much better at sampling their own grain, particularly straight off the trailers, making bins, taking big bulk samples and making them very well mixed so that you know what you’re getting rather than just poking a sample pole into the top of a 10-metre-high heap when you’re only sampling the first two metres and there could be all sorts of things underneath. And obviously then making sure that grain is looked after well in store.
At end of the day, the fundamentals of the market as they are currently at the moment, if you want 160 or whatever it is, the local market, you can take that price today or you can take that price in May. It could even be worse if there’s a clear-out. And certainly looking – I’m in the south of England – but the wheat crops look absolutely magnificent this year. Absolutely magnificent. And if they come to a fruition, a really big harvest, nobody’s going to want to have old crop left at the end of this current market. And people are going to be looking to start to market the 26 crop, but I suspect people haven’t sold very much forward for 26. That’s going to be quite a problem.