News

Standard Bank Group increases flexibility for farmers on grain price hedging
16 September 2011

Standard Bank Group now provides South Africa's grain farmers with greater flexibility regarding price hedging. This is done by providing production loans against the cession of price contracts negotiated by farmers with reputable off-takers rather than insisting that farmers hedge through Standard Bank Group. 

"Until now, for farmers to get production funding from Standard Bank, they would have had to accept minimum or fixed price contracts negotiated by Standard Bank on their behalf," says MC Loock, senior manager of Standard Bank Group's agri-business support team in South Africa. "This limits them to a single hedging process and approach." 

"Now, farmers can negotiate with third party buyers of their own choosing and still fund their crop through us, as long as their buyers are among our accredited ones and accept the cession of the purchasecontract to us." 

"This new approach also frees farmers from rising costs in relation to hedging service." 

Mr Loock recommends that farmers be firm about theprices they need. 

"The market and price volatility that besets the grain industry would floor most other sectors. It's therefore vital that farmers understand exactly what it will cost them to produce a crop and what their overheads are before accepting a price. It's also essential for the sustainability of the operation that the fixed price they enter into guarantees that they will make adequate returns." 

To inject some stability into farming operations, Mr Loock advises that farmers not wait to sell their crops in the hope that they can improve their price at the end of the season. "Far better to sell one third of the crop on a pre-season minimum price contract and one third on a pre-season fixed price contract. One can then keep the last third for the end of season premiums, without risking losing good income from the main part of the crop." 

Mr Loock says that the greater flexibility now allowed for in Standard Bank's funding approach does call for a higher level of responsibility to be taken by the farmer in selling his crop. 

"When we were doing the hedging for farmers, we would do a needs analysis upfront to understand their costs and the levels of profit required in order to negotiate a suitable price. 

"While it certainly helped farmers with their administration, we believe it's far more beneficial to the overall resilience of the operation for the owner to personally get to grips with the detail of his hedging strategy. 

"A single grain crop would be only one element of his operations. By doing his own negotiations with buyers, he is able to integrate a view of that single crop with the rest of his farming business and make more coherent plans for his future." 

Continuing its 150-year support for the agricultural sector, having started business as a financer of wool farmers in Eastern Cape province, Standard Bank Group will this year increase the specialist focus of its agricultural relationship managers. 

"In the past, relationship managers have had a range of clients, some of whom have been farmers, agri and commercial businesses," Mr Loock says. "From now on, our relationship managers will focus exclusively on agricultural clients. Our agricultural relationship managers are agricultural economists located in rural towns as close to farmers as possible. 

"This will take the value of the insight and advice we can offer to farmers to a different level and give significant impetus to our objective of growing the agricultural sector - and our share of it." 

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