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PKE SPOT Price vs 12 month contract - 2015

November 16, 2015

Quite often ADM are asked by our farmers what the benefits / disadvantages are of buying either spot or 12 month contracts. Below we have put together a brief summary of each to allow you to make the best stock-feed purchasing decision for your situation. 

Figure 1 below shows how the Spot and 12 Month contracts compare financially over 2015.

Based on the below data of 2015 over the course of the year the spot market has appeared to be the better contracting option by approximately 75 cents per tonne. However as we can see the spot market did rally between February and April mainly due to the weather. As we know markets and weather do not work hand in glove therefore there is risk in both contracting options.

Figure 1: SPOT Price VS 12 Month Contract Price 2015


So while there isn’t necessarily a right or wrong answer, what is best for you can simply be dependent on your individual business situation. For example your financial situation, your perspective on the coming season or current prices. Below are just a few of the advantages and disadvantage of contract vs spot. Often clients will choose to split their demand to provide a balance between certainty and flexibility.

Contract Advantages

·         Certainty of supply

·         Certainty of price

Contract Disadvantages

·         Locked into a long term price and volume commitment.

Spot Advantages

·         Flexibility for commodity choice, pricing and volume to suit fluctuating consumption. 

Spot Disadvantages

·         At risk of price spikes …..typically due to weather events increasing demand against supply.

 

This is general advice only. The provider of this advice has not considered any of your personal circumstances, financial objectives or needs. You must therefore assess whether it is appropriate to act on this advice, in the light of your own individual circumstances.

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