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09/02/06
Beef producers should do their sums carefully before entering
into a forward contract, says EBLEX.
BEEF farmers have been cautioned to take great care before locking
themselves into a forward contract which could see them out of
pocket.
Although these contracts can be a useful way to reduce the financial
risks of beef production and help buyers get the right cattle
delivered at the right time, there can be pitfalls for the producer,
says the English Beef and Lamb Executive (EBLEX).
In its latest “Beef Action For Profit” leaflet, beef
farmers are told they need to understand how forward contracts
work and whether they are right for their own business before
taking the plunge.
Guidelines for use when considering such a contract include:
- Understanding
production costs and cattle performance to assess the financial
implications of a forward contract.
- Choosing the right sort
of forward contract for your system
- Ensuring details
of specifications required are set in advance - and that
they are realistic.
- Knowing the financial penalty for failing
to deliver is usually based on the cost difference of filling
the contract at market prices.
Nick Allen, EBLEX Senior Regional
Manager, said: “Forward
contracts can be extremely useful but they don’t suit
every producer.”
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