What to consider when making your 2022 contracting decision

Published 15 November 2021

NFU Sugar

NFU Sugar board members talk about how they are planning to approach the 2022 contract, and why.

Now that British Sugar has invited growers to contract for the 2022 crop, NFU Sugar has received several requests from growers asking for guidance on the various options available.

As directed by the terms of the IPA, every grower must make their own decisions based on their individual circumstances, commercial interests and appetites for risk, and if unsure should take independent advice.

What guidance can NFU Sugar offer me?

NFU Sugar’s role is to negotiate the contract prices and options each year based on the information available at that point in time, but it is not able to offer specific advice to growers. However, we thought it would be helpful to note below the kind of things you may want to consider when making contracting decisions.

With several options and prices currently available we wanted to break these down further to help make sure you can make the best decision for your business. We have also included case studies from NFU Sugar board members which indicate what they are planning to do, and why. These case studies are intended to illustrate how different businesses have approached the 2022 contract, but you will need to take into account your own individual circumstances when making your decisions.

If you’re still unsure about any part of the contract offer please get in touch with NFU Sugar on 0370 066 1974 or at [email protected]

Key things to consider

Things to consider if you're deciding whether or not to extend your existing MY contract:

  • Your view on future sugar and other commodity market movements, which will impact potential contract prices in 2023 and/or 2024.
  • Your view on the likely market bonus to be paid on your existing contract over and above the £21.18/t base price.
  • Your price risk appetite.
  • Your production costs and the potential impact of rising costs on both beet and alternative crops. 
    • Tools such as AHDB’s Farmbench can help you understand costs and model the impact of cost increases across your rotation.
    • If you contract for an additional year, you are making a legally binding commitment to sell beet to British Sugar in that year, regardless of whether your cost profile no longer supports beet growing.

Things to consider if you're deciding whether or not to put up to 10% of your total CTE on the futures-linked contract:

  • Your appetite for market exposure.
    • Are you comfortable having beet exposed to a market price that may fall below the fixed price alternative?
  • Your view on sugar futures market movements over the coming 10 months.
    • If you believe the upward price direction in the market will continue, you may see greater value in this contract than the fixed price option.
    • If you believe there may be downward price risks on the horizon, you may see value in securing the price of any tonnage on the futures-linked contract early on in the pricing period.
  • Your capacity to manage the price.
    • Prices on this contract are managed via an online portal and/or smartphone application, so do require you to have web access and ability to use these tools.
  • Your capacity to contract additional tonnage if you have already sold forward.
    • If you have already sold 100% of your CTE to British Sugar for 2022 on a multi-year deal, you would need to request additional CTE if you wish to make use of the futures-linked contract.

More information

There is much more information available on NFUonline to help you understand the futures-linked contract. See the links at the bottom of this page.

Read on to learn how our NFU Sugar board members are planning for 2022.

Simon Smith

Simon Smith

I am not planning to extend any of my contracts. I will see out my commitments but believe the £25 fixed price may not even be an upgrade once the bonus on the existing contract is taken into account. The fixed price of £25 has no bonus, whereas in my existing contract this provides a safeguard if future inflation increases all costs and prices.

I plan to increase the tonnage on the futures-linked contract up to the maximum percentage for all my own contracts, though will not do so for contracts I manage under contract farming agreements. This is to increase the control I have in my own hands and allow me to make more of my own pricing decisions, following the extremely successful pilot.

 

Total CTE/
CTE to
be requested

1-year contract

1 year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

76,000

-

6%

94%

-

-

-

2022 crop intention

78,000

-

8%

92%

-

-

-

 

Tim Beaver

Tim Beaver

I was disappointed to have missed out on the price opportunities the futures-linked contract offered in 2021, so will be putting some of my one-year tonnage on this contract for 2022 and hope it will return again.

I don’t want to tie myself into longer term contracts than I currently have while sugar prices remain high, as the existing three-year deal will hopefully pay more than the base price due to the market-linked bonus.

With the current ongoing changes in Red Tractor and carbon requirements I want to know how much extra these will cost my beet area and what statutory demands will be in place before committing to another long term beet contract.

 

Total CTE/
CTE to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

4,000

70%

-

30%

-

-

-

2022 crop intention

4,000

60%

10%

30%

-

-

-

Sam Godfrey

Sam Godfrey

The market bonus payment should help my existing contracts get towards £25 for the existing years. My view is that prices in the market will not be too far below their current level once my contracts come up for renewal next year, and I would like to have exposure to greater upside opportunity for 2023 and the possibility of using the futures-linked contract.

For me, being open to more options next year is worth the possibility of a potentially small foregone income in 2022. If I were to fix my prices for a further year I would miss out on this. It also allows me to keep my options open to reduce area in future years.

I would have considered extending a proportion of my multi-year deals but because British Sugar will only allow all or nothing, I will not plan to extend any of my deals.

 

Total CTE/
CTE to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

35,000

-

-

80%

-

20%

-

2022 crop intention

35,000

-

-

80%

-

20%

-

Kit Papworth

Kit Papworth

I plan to increase the amount I put on the futures-linked contract, putting on the maximum amount I can of the contracts I directly control. I will maintain my existing CTE and allow my multi-year contracts to run out as I feel the market will rise and I wish to be open to it.

I also want to retain control should I (or any of the farmers I contract farm for) need to reduce beet area, particularly given that the new agriculture policy may drive an increase in environmental stewardship.

 

Total CTE/
CTE to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

11,000

35%

5%

60%

-

-

-

2022 crop intention

11,000

34%

6%

60%

-

-

-

Alison Lawson

Alison Lawson

I haven’t made a decision yet as my focus is elsewhere in the business at the moment. I am not the only decision maker in the business so it will depend on our joint views.

 

Total CTE/CTE
to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

7,000

-

-

100%

-

-

-

2022 crop intention

7,000

Undecided

Graham Liddle

Graham Liddle

I haven’t made my mind up yet but am inclined to hang on with my existing 2020 multi-year contract to give myself more options in 2023. I am hoping the bonus will pay out but am willing take the hit if necessary.

With costs of all crops going up, if prices are not sufficient next year I would rather not grow anything than grow any crop at a loss. However, I have invested in harvesters so it will impact my investment if I cut down in a future year. I will probably maintain my one-year tonnage if possible, but I fear I may not get the full area I need.

I am currently about 10-15% short due to the land rental market. If I can’t rent enough area for beet growing I will have to reduce. I was hesitant about the futures-linked contract last year, so only put 5% on the pilot, as I generally prefer the certainty of a guaranteed price, but my attitude is changing so I might increase from 5% to 10%, especially if the price stays firm over next few weeks.

 

Total CTE/CTE
to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

12,000

25%

5%

55%

-

15%

-

2022 crop intention

12,000

Undecided

Tom Clarke

Tom Clarke

I am planning to reduce my area substantially due to Virus Yellows risk, which will likely mean I hand back a portion of my one-year contract.

I would like to keep the maximum possible volume I can on the futures-linked contract subject to my new total contract volume.

I won’t extend my multi-year deal as I don’t want to be tied in for an additional year and would like the freedom to decide on my cropping in 2023.

 

Total CTE/
CTE to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

7,000

55%

10%

35%

-

-

-

2022 crop intention

c.4,000

30%

10%

60%

-

-

-

Andrew Ross

Andrew Ross

I am undecided but my initial view is to leave my multi-year deals as they are and wait and see. This will give me exposure to price movements in 2023. I am considering whether to increase the tonnage I put on the futures-linked contract up to 10% but I am not sure if the price will remain where it is.

I will keep my total CTE the same and even out the remainder on the one-year contract so that 10% of each contract can be put on the futures-linked price. As I hold three separate contracts, I may extend one out of the three contracts to hedge my bets.

I am confident that I will grow at least some beet in future years, but I believe it would be dangerous to put everything into long-term contracts.

 

Total CTE/
CTE to be requested

1-year contract

1-year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

9,000

12%

2%

86%

-

-

-

2022 crop intention

9,000

Undecided

Michael Sly

Michael Sly

I plan to request additional tonnes to allow me to put the maximum amount I can on the futures-linked contract. Due to the uncertainty of Virus Yellows and growing costs I am not extending my multi-year contracts. This is also because I wish to be able to review my beet area in future years, and may be more cautious due to Virus Yellows and cercospora risks.

Although the existing multi-year contracts have a lower headline price than the extension option, I do have access to the market-linked bonus which will hopefully make up some of the difference. If I do decide to go into new multi-year deals in the future, I would want them linked to the futures-linked risk management tool.

 

Total CTE/ CTE to be requested

1-year contract

1 year futures-linked contract

2020-22
3-year contract

2020 3-year contract extension

2021-23
3-year contract

2021 3-year contract extension

2021 crop

12,500

-

4%

96%

-

-

-

2022 crop intention

13,300

-

10%

90%

-

-

-

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