Futures on Potato

Futures on Potato

Photo: http://moscow-airports.com

Russian agricultural producers began selling potatoes a year in advance. Futures on agricultural products started being used when a trading company orders a set of vegetables to a producer in the fall, transferring an advance payment for the spring sowing season, and receives the product in batches at fixed prices during the harvest time.

The contract prices will not change in this case which means that the buyers will benefit.

The price of potatoes this year reached 80-100 rubles ($1.08-1.35) per 1 kg. Moreover, it keeps growing so that it might reach the level of 120-150 rubles ($1.62-2.03) per 1 kg by the New Year.

There is no secret that potatoes are one of the main and popular products in Russia. Peter the Great brought it to Russia from Holland. After having tasted it, peasants called this product “ground apple.” Potatoes became widespread in Russia over time and were respectfully named “the second bread.” Today, China ranks first in its production, followed by India, Russia, and Ukraine, the top producers of potatoes.

Potatoes are now traded on the exchange in tonnes. 30 tonnes of this product are supplied under each contact. Some platforms trade goods in different currencies. The price of potatoes can be affected by exchange rates, harvests, natural disasters, as well as speculation on the same exchange, politics, and other factors. Traders and investors make money in the financial markets through selling and buying futures. Potato contracts are made in the commodities markets.

“Producers find it easier to sell their crops to traders,” Tatiana Gubina, head of the Union of Potato and Vegetable Market Participants, told wek.ru, “because participation in the same fairs requires expenses for additional staff and delivery. As for products grown on small farms, it is extremely difficult for these producers to work with retail chains, because they have high requirements and quality, and calibration, and volume, and resellers take care of the primary treatment of vegetables.

During the last 12 months, the “second bread” rose in price by 147%. The first factor in the price increase is the growth in labor costs due to the pandemic as there are fewer migrant workers because of the virus. Wages have increased by 2-3 times, as well as the exchange rate. In addition, there is high inflation, logistics, high prices of fertilizers and equipment. All of this led to an increase in the share of imported, that is, more expensive products on sale.

“This year brought different weather conditions in those regions where potatoes are grown in large volumes,” said Gubina. “Mostly, they were very unfavorable for the harvest. Of course, there is a harvest but the producers, unfortunately, did not hit the records this year due to objective circumstances. Remember what downpours were in some areas and regions. So, there was overwatering. On the contrary, other regions faced a real drought. As a result, there are not enough potatoes to meet the consumer demand for retail networks now.”

The program of comprehensive rural development is still underfunded. The problems in the agricultural sector will have to be solved to fully provide the country with its products.

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