Buying strategies

Home \ Prices & Stats \ Risk Management \ Buying strategies

Buying strategies 

  1. Buy ‘as and when’ 

Commonly referred to as buying on the ‘spot market’, buying ‘as and when required’ can form part of a business strategy if it has been thought out and planned in advance. This is a commonly used practice and offers the greatest potential returns should the market price fall. However, it also presents the highest risks and offers no protection should the market price rise, leaving buyers of grain completely exposed to market movements. 

  1. Join a buying group 

Joining a buying group can allow you to benefit from economies of scale, as well as possible access to specialised marketing and professional expertise. Allocating the responsibility of sourcing requirements to a third party can help with time management. This has the benefit of allowing you to focus on other aspects of the business, although it could reduce the level of control you have on your purchases and the price paid. 

  1. Buying forward 

Buying forward some or all of your input requirements can allow you to lock in a price, providing greater price certainty and allowing costs of production to be mapped in advance. It does however limit opportunities to benefit from any fall in the market. In a strategy where all of the input is bought forward, the certainty of locking in a price is disadvantaged by the inability to benefit from any decrease in the market price during the year. 

A development to the buying forward strategy is to buy a proportion of your feed requirements forward at regular intervals; a strategy referred to as ‘averaging’. The concept of averaging is to reduce volatility in the market by taking the average price over the period. 

Averaging removes the uncertainty in knowing when to react to price movements, allows the business to take the average market price during the year, and is relatively time efficient. It may also help better manage cash flow during the year, as it spreads purchases over the year, as opposed to buying all your grain requirements at one particular time. 

In a rising market, averaging can also help reduce the overall cost of feed compared with buying all of your input requirements at the end of the period. In a falling market, averaging will result in a higher total cost. 

Pricing strategies

Strategy

Impact on feed costs if grain prices...

Comments

Go UP

Go DOWN

Do nothing

Unfavourable

Favourable

Completely exposed to market.

Join a buying group

-

-

Responsibility of sourcing feed is given to a third party.

Buying forward

Favourable

Unfavourable

‘Locks-in’ price for future delivery. Removes exposure to market.

‘Averaging’

Unfavourable

Favourable

Achieves an 'average' price over the period and removes uncertainty in knowing when to buy grain.

For the latest information on feed prices, click here