In his article for agrotimes.ua, Oleksandr Solovey, Commercial Director of Spike Brokers, discusses forward contracts as a strategic tool for farmers.

Ukrainian farmers are gradually turning their attention to the forward contracting of future crops.

This is a smart approach for system-based businesses. Usually, it’s medium and large farms with land banks of 5,000 hectares or more that engage in these transactions. However, only 20-30% of market participants use this mechanism, with most being large holdings that need to plan logistics well in advance due to the volume of production.

To minimize price and logistics fluctuations, on average, 30-40% of the future crop is contracted between December and March-May. Currently, some forward prices look quite favorable. For example, the price for food wheat of the new harvest starts at $200/ton.

Typically, January is considered the forward contracting period, although in December, we had already contracted soybeans for the 2025 harvest. Western Ukrainian farmers, who are confident in weather conditions and production potential, often pre-sell up to 30% of their future harvest, especially when forward prices offer good margins.

Of course, the main risk of forward contracting is a lower price than the market value during or after the harvest. However, typically only a third of the crop is contracted. If we look at the last 10 years of statistics, the lowest prices are usually observed during harvest and a few months after.

Our farmers are also actively focusing on more stable markets, such as forward contracts for rapeseed to Europe, tied to the MATIF exchange. This allows sellers to lock in a price close to the delivery period, enabling better logistical planning and flexibility in pricing. For farmers, aside from production costs, the key economic components are the sale price and logistics costs.

We are currently in a period of low logistics costs. Forward contracting during a time when market prices may rise provides confidence in selling at attractive prices and guarantees low transport costs, positively impacting business profitability.

By July-August, when final producers in Europe try to secure rapeseed deliveries, they often find no available slots due to prior contracting. Ukrainian farmers need to learn from the advanced European market and adopt this tool. Unfortunately, many still approach each year as if it were the last, which is a key difference between European businesses and small- and medium-sized Ukrainian farms, which account for 50% of the country’s production potential. European businesses plan for 5-10 years, and through better understanding and calculations, we will gradually follow this approach.